Question

Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2016, the bank held as trading securities 140 shares of Eglan Company common stock that originally cost $3,710. At that time, these securities had a fair value of $3,500. During the fourth quarter, the bank engaged in the following trading securities transactions:

Oct. 26	Purchased 340 shares of Farrell Company common stock for $36 per share.
Nov. 26	Sold 140 shares of Eglan common stock for $24 per share.
Dec. 10	Purchased 420 shares of Gray Company common stock for $45 per share.

On December 31, 2016, the quoted market prices of the shares were as follows: Eglan Company, $54 per share; Farrell Company, $39 per share; and Gray Company, $44 per share.

Required:

1.	Prepare journal entries to record the 2016 transactions for the fourth quarter.
2.	Show what the bank reports on its fourth quarter 2016 income statement for these trading securities.
3.	Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2016.
4.	Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for trading securities?

please answer all if possible.

Answer 1

1	Account Titles and Explanation	Debit	Credit
Oct-26	Investment in trading securities (340 X $36)	$       12,240
	Cash		$ 12,240
Nov-26	Cash (140 X $24)	$         3,360
	Loss on sale of securities	$             140
	Investment in trading securities		$    3,500
Dec-10	Investment in trading securities (420 X $45)	$       18,900
	Cash		$ 18,900
Dec-31	Investment in trading securities	$             600
	Unrealized gain on Investment in trading securities		$        600
	Unrealized gain on Investment in trading securities = [340 X ($39 - $36)] + [420 X ($44 - $45)] = $600
2	Income statement
	For the fourth quarter 2016
	Unrealized gain on Investment in trading securities	$             600
	Loss on sales of securities	$           -140
	Profit	$             460
3	Balance sheet
	At the end of the fourth quarter 2016
	Current Assets
	Investment in trading securities	$       31,740
	Investment in trading securities = [(340 X $36)] + (420 X $45) + $600] = $600
4	Treatment for Unrealized holding gains and losses for trading securities as pe FASB is:
	Unrealized holding gains and losses for trading securities are short term investments and shall be reported under Income statement.