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Trading Securities Southeast Bank invests in trading securities and prepares qua

ID: 2421193 • Letter: T

Question

Trading Securities

Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2013, the bank held as trading securities 250 shares of Eglan Company common stock that originally cost $6,875. At that time, these securities had a fair value of $6,500. During the fourth quarter, the bank engaged in the following trading securities transactions:

Oct. 26   Purchased 280 shares of Farrell Company common stock for $35 per share.

Nov. 26 Sold 250 shares of Eglan common stock for $24 per share.

Dec. 10   Purchased 460 shares of Gray Company common stock for $40 per share.

On December 31, 2013, the quoted market prices of the shares were as follows: Eglan Company, $52 per share; Farrell Company, $38 per share; and Gray Company, $39 per share.

1. Prepare journal entries to record the preceding information for the fourth quarter. For compound entries, if an amount box does not require an entry, leave it blank.

investments in trading securities

2. Show what the bank reports on its fourth quarter 2013 income statement for these trading securities.

3. Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2013.

current assets:

2013 investments in trading securities $????? Oct 6 cash $????? Nov 26 cash $????? loss on sale of trading securities $?????

investments in trading securities

$????? Dec 10 investments in trading securities $????? cash $????? Dec 31 investments in trading securities $????? unrealized holding gain/loss: trading securities $?????

Explanation / Answer

1. Journal entries to record the preceding information for the fourth quarter

Date

Account title

Debit

Credit

2013

Investments in trading securities

9800

Oct 6

Cash

9800

Nov 26

Cash

6000

loss on sale of trading securities

500

investments in trading securities

6500

Dec 10

investments in trading securities

18400

Cash

18400

Dec 31

investments in trading securities

380

unrealized holding gain/loss: trading securities

380

2.Bank reports on its fourth quarter 2013 income statement for these trading securities.

loss on sale of trading securities

460

unrealized holding gain

840

3. Bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2013.

Current assets

investments in trading securities (at fair value)

28580

Date

Account title

Debit

Credit

2013

Investments in trading securities

9800

Oct 6

Cash

9800

Nov 26

Cash

6000

loss on sale of trading securities

500

investments in trading securities

6500

Dec 10

investments in trading securities

18400

Cash

18400

Dec 31

investments in trading securities

380

unrealized holding gain/loss: trading securities

380

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