TRADING SECURITIES During 2001, Sunshine Inc. purchased the following trad Marke

Question

TRADING SECURITIES During 2001, Sunshine Inc. purchased the following trad Market 12/3112001 $14,000 8,000 25,000 57,000 Cost Securit Wexler Common TexCo Common Drum Common 14,000 $ 52,000 At the begining of 2001, Sunshine had a zero balance in Market Adjustment- 1. What entry would be made at year end to adjust the securities to mark djustment-Tradin nig et value assuming the above values 2. What entry would be made during 2002 assuming the Wexler Co. common stock is sold for $19,000 3. What entry would be made during 2002 to record the receipt of $1,500 in dividends. 4, Give the entry that would be made at the end of 2002 assuming the market values of remaining securities are Cost 18,000 25,000 $ 43,000 Market 12/31/2002 S 10,000 26,000 $ 36,000 TexCo Common Drum Common

Explanation / Answer

Question - 1

Cost = 52000 and Market value = 57000. That means there is Unrealized gain - Equity 5000 which will be credited with a corresponding debit given to Fair value adjustment account

Question - 2

Wevler common stock had cost = FMV = 14000. These are sold for 19000. Which means there is a realized gain of 5000.

Question - 3

When dividend is received, journal entry is to debit cash received and credit Dividend received - Income summary account.

Question - 4

On 12/31/2002 .......... cost = 43000 and FMV = 36000, which means 7000 Un realized loss - Equity.

Date Particulars Debit Credit 12/31/01 Fair value Adjustment account - AFS (ST) 5000    Unrealized gain - Equity 5000

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