Assessing Financial Statement Effects of Trading and Available-for-Sale Securiti

Question

Assessing Financial Statement Effects of Trading and Available-for-Sale Securities
Use the financial statement effects template to record the following four transactions involving investments in marketable securities. Assume that these transactions occur in 2018.

Purchased 6,000 common shares of Liu, Inc., at $12.25 cash per share.

Received a cash dividend of $1.50 per common share from Liu.

Year-end market price of Liu common stock is $11.25 per share.

Sold all 6,000 common shares of Liu for $66,300.

Use negative signs with answers, when appropriate.

Balance Sheet

Noncash

Assets

Contributed

Capital

Earned

Capital

Income Statement

Net

Income

Balance Sheet

Transaction Cash Asset +

Noncash

Assets

= Liabilities +

Contributed

Capital

+

Earned

Capital

(1) Answer Answer Answer Answer Answer (2) Answer Answer Answer Answer Answer (3) Answer Answer Answer Answer Answer (4) Answer Answer Answer Answer Answer

Explanation / Answer

Answers

‘a’: Cash paid = 6000 x 12.25 = $ 73,500

‘b’: Dividend received in cash (earned revenue) = 6000 x 1.5 = $ 9000

‘c’: Revaluing stock loss = 6000 shares (12.25 – 11.25) = $ 6,000 loss

‘d’: Cash received $ 66,300 for shares book value of $ 67,500 (73500 – 6000) = $ 1200 Gain

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash

=

Liabilities

+

Contributed

+

Earned

Revenue

-

Expenses

=

Net

Assets

Capital

Capital

Income

1

$                   (73,500.00)

$               73,500.00

$                                       -  

$                                                                 -  

$                        -  

$                 -  

$                  -  

$              -  

2

$                        9,000.00

$                              -  

$                                       -  

$                                                                 -  

$           9,000.00

$       9,000.00

$                  -  

$    9,000.00

3

$                                     -  

$               (6,000.00)

$                                       -  

$                                                                 -  

$        (6,000.00)

$                 -  

$        6,000.00

$   (6,000.00)

4

$               66,300.00

$          (67,500.00)

$                            -  

$                                                -  

$       1,200.00

$       1,200.00

$                  -  

$    1,200.00

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash

=

Liabilities

+

Contributed

+

Earned

Revenue

-

Expenses

=

Net

Assets

Capital

Capital

Income

1

$                   (73,500.00)

$               73,500.00

$                                       -  

$                                                                 -  

$                        -  

$                 -  

$                  -  

$              -  

2

$                        9,000.00

$                              -  

$                                       -  

$                                                                 -  

$           9,000.00

$       9,000.00

$                  -  

$    9,000.00

3

$                                     -  

$               (6,000.00)

$                                       -  

$                                                                 -  

$        (6,000.00)

$                 -  

$        6,000.00

$   (6,000.00)

4

$               66,300.00

$          (67,500.00)

$                            -  

$                                                -  

$       1,200.00

$       1,200.00

$                  -  

$    1,200.00

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