Question

Assessing Financial Statement Effects of Marketable Equity Securities
Use the financial statement effects template to record the following four transactions involving investments in marketable equity securities. Assume that these transactions occur in 2018.

1. Purchased 18,000 common shares of Baez, Inc., at $12 cash per share.
2. Received a cash dividend of $1.20 per common share from Baez.
3. Year-end market price of Baez common stock is $11.25 per share.
4. Sold all 18,000 common shares of Baez for $213,600.

Use negative signs with your answers, when appropriate.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
(1)	Answer		Answer		Answer		Answer		Answer
(2)	Answer		Answer		Answer		Answer		Answer
(3)	Answer		Answer		Answer		Answer		Answer
(4)	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer

Marketable Debt Securities
Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities. Assume that these transactions occur in 2016 (before the new rules for securities went into effect).

a. Loudder Inc. purchases 5,000 bonds with a face value of $1,000 per bond. The bonds are purchased at par for cash and pay interest at a semi-annual rate of 4%.
b. Loudder receives semi-annual cash interest of $200,000.
c. Year-end fair value of the bonds is $978 per bond.
d. Shortly after year-end, Loudder sells all 5,000 bonds for $970 per bond.

Use negative signs with answers, if appropriate.                        

				Balance Sheet								Income Statement
			Noncash				Contrib.		Earned
Transaction	Cash Asset	+	Assets	=	Liabilities	+	Captial	+	Capital		Revenues	-	Expenses	=	Net income
Loudder purchases bonds.	Answer		Answer		Answer		Answer		Answer		Answer		Answer		Answer
Loudder receives cash interest.	Answer		Answer		Answer		Answer		Answer		Answer		Answer		Answer
Bonds year-end fair value is determined.	Answer		Answer		Answer		Answer		Answer		Answer		Answer		Answer
Loudder sells all bonds	Answer		Answer		Answer		Answer		Answer		Answer		Answer		Answer

Answer 1

Assessing Financial Statement Effects of Marketable Equity Securities

Refer to the below table:

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
(1)	-216000(cash out for investment purchase)		216000(investment)		0		0		0
(2)	21600(receipt of dividend)		0		0		0		0
(3)			-13500(unrealised loss at the year end due to revaluation at year end)(12-11.25)* 18000 share		0		0		0
(4)	213600 (sale proceeds from invetments)		-216000(all investments sold)+13500 reversal of unrealised loss		0		0		19200(amount from the Income statement)

Income Statement
Revenue	-	Expenses	=	Net
21600(Dividend Income)		0		21600
0		-13500 unrealised loss		-13500
0		-2400 realised loss		-2400
0		reversal of unrealised loss on the sale of investment		13500
		Total		19200

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