On December 27, 2014, Dave Alexander Company purchased the following three equit
ID: 462776 • Letter: O
Question
On December 27, 2014, Dave Alexander Company purchased the following three equity securities for a trading portfolio:
On December 31, 2014, the three securities were still held and the respective fair values were as follows:
The three securities were all sold on January 2, 2015 for the following amounts:
No more trading securities were held or acquired.
Instructions
(a) Prepare all journal entries related to these securities.
(b) Describe what will appear on the financial statements for 2014 with regard to these securities. Assume a calendar year reporting period.
(c) Describe what will appear on the financial statements for 2015 with regard to these securities.
Security Cost $12,000 20,000 30,000 TotalExplanation / Answer
(b) The securities will be reported at the fair value of $65,500 ($62,000 cost plus $3,500 excess of fair value over cost reflected in the fair value adjustment account) in the current asset section of the balance sheet at December 31, 2014. An unrealized holding gain of $3,500 will be reported in the “other revenues and gains” section of the income statement for the year ending December 31, 2014.
(c) There are no securities reported on the balance sheet at December 31, 2015. The gain on sale of securities of $3,500 is reported in the “other revenues and gains” section of the income statement and the $3,500 unrealized holding loss is reported in the “other expenses and losses” section of the income statement for the year ending December 31, 2015.
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