2. First Bank purchased the following securities during 2017 and classified them

Question

2. First Bank purchased the following securities during 2017 and classified them all as trading securties. Purchased 500 shares of Duke Company's common stock for $55 per share Purchased 2,000 shares of Queen Company's common stock for $45 per share Purchased 1,000 shares of Prince Company's preferred stock at S120 per share. Received $3,000 of dividends during 2017 related to the common stock investments Fair Value at Security 500 shares of Duke common stock Cost S 27,500 90,000 120.000 $ 237,500 $ 30,000 105,000 115.000 S250,000 2,000 shares of Queen common stock 1,000 shares of Prince preferred stock Totals Prepare journal entries to record the preceding information. What is the unrealized holding gain or loss and where is it reported on the 2017 financial statements? Prepare the journal entry to record the unrealized holding gain or loss. How would the bank report these securities on its balance sheet for the year ended 2017?

Explanation / Answer

Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Investment in Duke Co.      27,500.00 500 Shares X $55    Cash      27,500.00 (To record the purchase of Common Stock of Duke Co.) 2 Investment in Queen Co.      90,000.00 2,000 shares X $45    Cash      90,000.00 (To record the purchase of Common Stock of Queen Co.) 3 Investment in Prince Co.    Cash    120,000.00 1,000 Shares X $120 (To record the purchase of Preff. Stock of Prince Co.)    120,000.00 4 Cash        3,000.00     Investment Revenue        3,000.00 (To record the dividends received) Answer 3. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Valuation Allowance for Trading Investments      12,500.00 Unrealized Gain on Trading Investments      12,500.00 (Record the Fair value adjustment of Trading securities) Answer 2. No. of Shares Cost Fair Value Difference Duke Co. - Common Stock                  500      27,500.00      30,000.00      2,500.00 Queen Co. - Common Stock              2,000      90,000.00    105,000.00    15,000.00 Prince Co. - Preff. Stock              1,000    120,000.00    115,000.00    (5,000.00) Total - Unrelaized Holding Gain (Loss)    12,500.00 Answer 4. First Bank Balance Sheet As on Dec 31, 2017 Assets Current Assets Trading Investment (At Cost)    237,500.00 Add: Valuation allowance for Trading Investment      12,500.00    250,000.00

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