Rantzow-Lear Company buys and sells securities expecting to earn profits on shor
ID: 2632657 • 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 2011 and the first week of 2012.
2011
Dec.17 - purchaused 100,000 Grocer's Supply Corporation preferred shares
Dec. 28 - received cash dividends of $2,000 from the grocer's supply corporation preferred shares
Dec. 31 - recorded any necessary adjusting entry relating to the Grocers's Supply Corporationprefferrd shares. The market price of the stock was $4 per share.
2012
Jan. 5- sold the grocer's supply corporation preferred shares for $395,000.
Required: 1. Prepare the appropriate journal entry for each transaction
2. Inficate any amounts that Rantzow-Lear Company would report in its 2011 balance sheet and income statement as a result of this investment.
Explanation / Answer
Date
Description
Debit
Credit
17-Dec-11
Preferred Stock
350,000
Cash
350,000
Purchase of 100,000 Preferred Stock of Grocers' Supply Corporation
28-Dec-11
Cash
2000
Preference Dividend Received
2000
Received cash dividend on Preferred Stock of Grocers' Supply Corporation
5-Jan-12
Cash
395000
Gain on Sale of Preferred Stock
45000
Preferred Stock
350000
Gain on Sale of Preferred Stock
Rantzow-Lear Company would show the fair or market value of its investments in 2011 Balance Sheet. The same would be shown as -
100,000 Preferred Stock @ $3.5 per share
Date
Description
Debit
Credit
17-Dec-11
Preferred Stock
350,000
Cash
350,000
Purchase of 100,000 Preferred Stock of Grocers' Supply Corporation
28-Dec-11
Cash
2000
Preference Dividend Received
2000
Received cash dividend on Preferred Stock of Grocers' Supply Corporation
5-Jan-12
Cash
395000
Gain on Sale of Preferred Stock
45000
Preferred Stock
350000
Gain on Sale of Preferred Stock
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