FKG Inc. carries the following investments on its books at December 31, 2015, an

Question

FKG Inc. carries the following investments on its books at December 31, 2015, and December 31, 2016. All securities were purchased during 2015.

Required:

(1.) Prepare the necessary journal entries for FKG on December 31, 2015, and December 31, 2016.
(2.) What net effect would the valuation of these stock investments have on 2015 net income? On 2016 net income?

Trading Securities: Company Cost Value, Dec. 31, 2015 Value, Dec. 31, 2016 A Company $25,000 $13,000 $20,000 B Company $13,000 $20,000 $20,000 C Company $35,000 $30,000 $25,000 Available for Sale Securities: Company Cost Value, Dec. 31, 2015 Value, Dec. 31, 2016 X Company $210,000 $130,000 $50,000 Y Company $50,000 $60,000 $70,000

Explanation / Answer

1

Journal Entries:

JOURNAL

DATE

ACCOUNTS / DESCRIPTION

DEBIT

CREDIT

2015

Dec. 31, 2015

Loss on held for Trading Investments (25000-13000)

$        12,000

Investment in A Company

$        12,000

Dec. 31, 2015

Investment in B Company

$          7,000

Profit on held for Trading Investments (20000-13000)

$          7,000

Dec. 31, 2015

Loss on held for Trading Investments (35000-30000)

$          5,000

Investment in C Company

$          5,000

Dec. 31, 2015

Unrealized Gain / Loss (210000-130000)

$        80,000

Investment in X Company

$        80,000

Dec. 31, 2015

Investment in Y Company

$        10,000

Unrealized Gain / Loss (60000-50000)

$        10,000

2016

Dec. 31, 2016

Investment in A Company

$          7,000

Profit on held for Trading Investments (20000-13000)

$          7,000

Dec. 31, 2016

Loss on held for Trading Investments (30000-25000)

$          5,000

Investment in C Company

$          5,000

Dec. 31, 2016

Unrealized Gain / Loss (130000-50000)

$        80,000

Investment in X Company

$        80,000

Dec. 31, 2015

Investment in Y Company

$        10,000

Unrealized Gain / Loss (70000-60000)

$        10,000

2

Calculation of Effect on 2015 Net income :

Loss on held for Trading Investments (25000-13000)

$     (12,000)

Profit on held for Trading Investments (20000-13000)

$          7,000

Loss on held for Trading Investments (35000-30000)

$        (5,000)

Effect on net income of 2015

$     (10,000)

1

Journal Entries:

JOURNAL

DATE

ACCOUNTS / DESCRIPTION

DEBIT

CREDIT

2015

Dec. 31, 2015

Loss on held for Trading Investments (25000-13000)

$        12,000

Investment in A Company

$        12,000

Dec. 31, 2015

Investment in B Company

$          7,000

Profit on held for Trading Investments (20000-13000)

$          7,000

Dec. 31, 2015

Loss on held for Trading Investments (35000-30000)

$          5,000

Investment in C Company

$          5,000

Dec. 31, 2015

Unrealized Gain / Loss (210000-130000)

$        80,000

Investment in X Company

$        80,000

Dec. 31, 2015

Investment in Y Company

$        10,000

Unrealized Gain / Loss (60000-50000)

$        10,000

2016

Dec. 31, 2016

Investment in A Company

$          7,000

Profit on held for Trading Investments (20000-13000)

$          7,000

Dec. 31, 2016

Loss on held for Trading Investments (30000-25000)

$          5,000

Investment in C Company

$          5,000

Dec. 31, 2016

Unrealized Gain / Loss (130000-50000)

$        80,000

Investment in X Company

$        80,000

Dec. 31, 2015

Investment in Y Company

$        10,000

Unrealized Gain / Loss (70000-60000)

$        10,000

2

Calculation of Effect on 2015 Net income :

Loss on held for Trading Investments (25000-13000)

$     (12,000)

Profit on held for Trading Investments (20000-13000)

$          7,000

Loss on held for Trading Investments (35000-30000)

$        (5,000)

Effect on net income of 2015

$     (10,000)

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