Question

Last Unguaranteed Financial Inc. purchased the following trading securities during Year 1, its first year of operations:

Name	Number of Shares	Cost
Arden Enterprises Inc.	4,800	$134,400
French Broad Industries Inc.	2,660	58,520
Pisgah Construction Inc.	1,670	106,880
Total		$299,800

The market price per share for the trading security portfolio on December 31, Year 1, was as follows:

	Market Price
	per Share,
	Dec. 31, Year 1
Arden Enterprises Inc.	$34
French Broad Industries Inc.	27
Pisgah Construction Inc.	60

Required:

A.	Provide the journal entry to adjust the trading security portfolio to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.
B.	Assume the market prices of the portfolio were the same on December 31, Year 2, as they were on December 31, Year 1. What would be the journal entry to adjust the portfolio to fair value?

B. Assume the market prices of the portfolio were the same on December 31, Year 2, as they were on December 31, Year 1. What would be the journal entry to adjust the portfolio to fair value?

1. Dr Unrealized Gain on Trading Investments Cr.Valuation Allowance for Trading Investments

2. Dr Valuation Allowance for Trading Investments Cr. Unrealized Gain on Trading Investments

3. Dr Unrealized Loss on Trading Investments Cr.Valuation Allowance for Trading Investments

4. No entry

32

Answer 1

Trading securities are the securities held with the intention to sale in short term. When the securities are purchased they are recorded at the cost and at each balance sheet date at fair value. Any difference between the fair value and the cost is recorded as unrealised gain/Loss on trading securities in income statement. When the securities are sold the difference between the sale and the securities value is recorded as realised gain or loss of trading securities in income statement. Any Dividend or interest received is recorded as dividend /interest income in income statement.

Name Number of Shares Cost Unrelaised gain/(loss) Market Price per share - Dec Market Value 31, Year 1 (C) (D) = (A) (C) $1,63,200 (B) (A) 4,800 (D) - (B) $28,800 $1,34,400 $34) 2,660 $58,520 $27 $71,820 $13,300 Arden Enterprises Inc. French Broad Industries Inc. Pisgah Construction Inc. Total 1,670 $1,06,880 $60 $1,00,200 -$6,680 $2,99,800 $3,35,220 $35,420 Journal Entry Date Dec 31, Year 1 Debit Credit Ans A Account Title Valuation Allowance for Trading Investments Unrealized Gain on Trading Investments $35,420 $35,420 Ans B Since the market price of the portfolio were same on Dec 31, Year 2 as they were on Dec 31, Year 1- No Journal entry will be required to adjust the portfolio to fair value. Hende the correct option is (D) i.e. No Entry