Rantzow-Lear Company buys and sells securities expecting to earn profits on shor
ID: 2539133 • Letter: R
Question
Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2016 and the first week of 2017. 2016 Purchased 150,000 Grocers' Supply Corporation preferred Dec. 17 shares for $525,000 8 Received cash dividends of $4,000 from the Grocers' Supply Corporation preferred shares. 31 Recorded any necessary adjusting entry relating to the Grocers' Supply Corporation preferred shares. The market price of the stock was $4 per share. 2017 lan Sold the Grocers' Supply Corporation preferred shares for an. 5 $,562,500. Required: 1. Prepare the appropriate journal entry for each transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)Explanation / Answer
Answer a Journal entries Date Account Title Debit Credit Dec.17,2016 Investment in Preferred stock - Grocers Supply Corporation $525,000 Cash $525,000 (to record purhcase of 150000 preferred stock of Grocers Supply Corporation @ $3.50 per share) Dec.28,2016 Cash $4,000 Dividend Income $4,000 (to record receipt of dividend income on Preferred stock) Dec.31,2016 Investment in Preferred stock - Grocers Supply Corporation $75,000 Fair Value adjustment account $75,000 (to record adjustment of investment value of preferred stock to its year end fair value @ $0.50 per share) Jan.5,2017 Cash $562,500 Fair Value adjustment account $75,000 Investment in Preferred stock - Grocers Supply Corporation $600,000 Gain on sale of preferred stock $37,500 (to record sale of preferred stock) Answer b Balance sheet (short term investment) Current Assets Investment in Preferred stock - Grocers Supply Corporation $600,000 Income Statement Income Dividend Income $4,000
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