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

Answer:(2)

2015:Net Income would be reduced by $10,000 due to the net unrealized holding loss on trading securities on companies A, B, and C. 2016: Net Income would be increased by $2,000 due to the net unrealized holding gain on trading securities on companies A, B, and C. The holding gains and losses on the securities available for sale are reported as a separate component of shareholders' equity in the balance sheet and do not affect the income statement.

Trading Securities: A B C B-A C-B Company Cost Value, Dec. 31, 2015 Value, Dec. 31, 2016 2015 2016 A Company $25,000 $13,000 $20,000 ($12,000) $7,000 B Company $13,000 $20,000 $20,000 $7,000 $0 C Company $35,000 $30,000 $25,000 ($5,000) ($5,000) ($10,000) $2,000 Dec in net income Increase in net income

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