COLTON MFG CO. INC. At December 31, 2014, Colton owned the following investments
ID: 2758080 • Letter: C
Question
COLTON MFG CO. INC.
At December 31, 2014, Colton owned the following investments in common stock of publically owned companies:
COST MARKET
Wolfe Computer, Inc. (5,000 shares: cost $50, market, $65) $250,000 325,000
Quality Foods (4,000 shares: cost $80, market, $75) $320,000 300,000
$570,000 625,000
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In 2015, Colton engaged in the following transactions:
April 5. Sold 1,000 shares of its investment in Wolfe Computer at a price of $66 per share, less $200 broker fee.
August 7. Sold 2,000 shares of Quality Foods stock for $72 per share, less broker fee of $300.
At December 31, 2015, the market values of these stocks were: Wolfe, $60 per share; Quality, $70.
Instructions:
a.What is the adjusting entry on December 31, 2014 for “mark to market”?
b. Prepare the entries for April 5 and August 7, 2015
c. Prepare a schedule showing the cost and market values of the stocks/securities owned at the end of 2015.
d. What is the adjusting entry for “mark to market” on December 31, 2015?
e. How much realized gain/loss will show on the companies Income Statement from these stocks in 2015?
Explanation / Answer
Solution :
a..
Date
Account title
Debit
Credit
Dec 31, 2014
Investment in shares of wolfe computer
75,000
Unrealised Gain/Loss
75,000
(325000-250000)
Unrealised Gain/Loss
20,000
Investment in shares of quality foods
20,000
(300000-300000)
b..
Apr 5,2015
cash (1000*66)-200
65,800
Investment in shares of wolfe computer (1000*65)
65,000
Gain/Loss on sale of investment(65800-65000)
800
Aug 7,2015
cash (2000*72)-300
143,700
Gain/Loss on sale of investment (150000-143700)
6,300
Investment in shares of quality foods (2000*75)
150,000
c..
Schedule
cost
Market value
Wolfe Computer, Inc.
260,000
240,000
4000shares*65
4000shares*60
Quality Foods
150,000
140,000
2000shares*75
2000shares*70
d..
Dec 31, 2015
Unrealised Gain/Loss (60-65)*4000shares
20,000
Investment in shares of wolfe computer
20,000
Unrealised Gain/Loss
10,000
Investment in shares of quality foods
20,000
(70-75)*2000shares
e..
realized gain/loss
Gain on sale of investment in wolfe computer
800
Loss on sale of investment in wolfe computer
- 6,300
Realised loss to be shown in income statement
- 5,500
Date
Account title
Debit
Credit
Dec 31, 2014
Investment in shares of wolfe computer
75,000
Unrealised Gain/Loss
75,000
(325000-250000)
Unrealised Gain/Loss
20,000
Investment in shares of quality foods
20,000
(300000-300000)
b..
Apr 5,2015
cash (1000*66)-200
65,800
Investment in shares of wolfe computer (1000*65)
65,000
Gain/Loss on sale of investment(65800-65000)
800
Aug 7,2015
cash (2000*72)-300
143,700
Gain/Loss on sale of investment (150000-143700)
6,300
Investment in shares of quality foods (2000*75)
150,000
c..
Schedule
cost
Market value
Wolfe Computer, Inc.
260,000
240,000
4000shares*65
4000shares*60
Quality Foods
150,000
140,000
2000shares*75
2000shares*70
d..
Dec 31, 2015
Unrealised Gain/Loss (60-65)*4000shares
20,000
Investment in shares of wolfe computer
20,000
Unrealised Gain/Loss
10,000
Investment in shares of quality foods
20,000
(70-75)*2000shares
e..
realized gain/loss
Gain on sale of investment in wolfe computer
800
Loss on sale of investment in wolfe computer
- 6,300
Realised loss to be shown in income statement
- 5,500
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