Question

The investments of Charger Inc. include a single investment: 11,730 shares of Raiders Inc. common stock purchased on February 24, Year 1, for $38 per share including brokerage commission. These shares were classified as trading securities. As of the December 31, Year 1, balance sheet date, the share price had increased to $45 per share.

Required:

A.	Journalize the entries to acquire the investment on February 24, and record the adjustment to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.
B.	How is the unrealized gain or loss for trading investments reported on the financial statements?

CHART OF ACCOUNTSCharger Inc.General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Raiders Inc. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Raiders Inc.
631	Gain on Sale of Investments
641	Unrealized Gain (Loss) on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Raiders Inc.
731	Loss on Sale of Investments

A. Journalize the entries to acquire the investment on February 24, and record the adjustment to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3		Adjusting Entries
4
5

B. How is the unrealized gain or loss for trading investments reported on the financial statements?

The unrealized gain or unrealized loss for trading investments is disclosed in the     (or a separate item if significant). In determining net income, unrealized losses and gains would be     in determining net income.

Answer 1

Answer to Part A: Credit Date Year 1, Feb 24 Debit 445,740 445,740 Description Investments-Raiders Inc. Stock (11,730 * $38) Cash (To record Investment acquired) Valuation Allowance for Trading Investments Unrealized Gain (Loss) on Trading Investments (11,730* ($45 - $38)] (To record adjustment for fair value) 82,110 Year 1, Dec 31 82,110 Answer to Part B: The unrealized gain or unrealized loss for trading investments is disclosed in the Income Statement as "Other Income" (or a separate item if significant). In determining net income, unrealized losses would be deducted and gains would be added in determining net income.