Question

The investments of Charger Inc. include a single investment: 18,440 shares of Raiders Inc. common stock purchased on February 24, Year 1, for $37 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?

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.

PAGE 10

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

Ans:

Date	Account title and explanation	Debit($)	Credit($)
February 24	Investment in shares A/c. Dr.	682,280
	To Cash/ Bank ($37*18,440)		682,280
	( To record the investment of shares)
December 31	Investment in shares A/c. Dr.($8*18,440)	147,520
	To unrealized gain A/c**		147,520
	( to record the unrealized gain)

**= difference: 45-37

=$8

B). Unrealized gain or loss is shown under the tab shareholder equity in balance sheet and forms a part of comprehensive income in income statement.