Ralph’s Bank buys and sells securities, expecting to earn profits on short-term
ID: 2469864 • Letter: R
Question
Ralph’s Bank 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 Ralph’s trading account occurred during the year.
December 20 Purchases 280,000 shares in Classic Computers common stock for $1,344,000
December 28 Receives cash dividends of $5,800 from the Classic Computers shares.
December 31
Record each of these transactions, including an adjustment on December 31 for the investment’s fair value, if appropriate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Ralph’s Bank 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 Ralph’s trading account occurred during the year.
December 20 Purchases 280,000 shares in Classic Computers common stock for $1,344,000
December 28 Receives cash dividends of $5,800 from the Classic Computers shares.
December 31
The fair value of Classic Computers’ stock is $4.60 per share.Record each of these transactions, including an adjustment on December 31 for the investment’s fair value, if appropriate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Date Account title Debit credit dec 20 Investment 1,344,000 cash 1,344,000 [investment made in trading securities] dec 28 cash 5800 Dividend income 5800 [dividend received ] dec 31 Loss in Fair value of investment 56000 Investment 56000 [being change in fair value recognised (4.6*280000)-1344000]
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