Question

Trading Securities:

Midwest Bank invests in trading securities. At the beginning of December 2019, the bank held no trading securities. During December of 2019, it entered into the following trading securities transactions:

Dec 10: Purchased 500 shares of C Company common stock for $76 per share

Dec 21: Purchased 800 shares of D Company common stock for $34 per share

At the end of December, the C Company common stock had a quoted market price of $79 per share and the D Company common stock had a quoted market price of $33 per share.

Required

1. Prepare journal entries to record the preceding information.
2. What is the unrealized holding gain or loss and where it is reported in the 2019 financial statements?
3. Show how the bank reports the trading securities on its December 31, 2019 balance sheet

Answer 1

Journal entries:

Date	Particulars	Debit($)	Credit($)
Dec-10	Investment in C company a/c	38000
	To bank a/c		38000
	(being 500 shares @$76 purchased from C company)
Dec-21	Investment in D company a/c	27200
	To bank a/c		27200
	(being 800 shares @$34 purchased from C company)

Shares of company C were purchased at $76 and the current market price is $79. Price has increased and there is unrealized holding gain of $3 per share. Total holding gain is $3 x 500 = $1500.

Shares of company D were purchased at $34 and the current market price is $33. Price has decreased and there is unrealized holding loss of $1 per share. Total holding gain is $1 x 800 = $800.

Bank reports trading securities under current assets in assets in its balance sheet.