Question

During the year ended December 31, 2019, and in the following months of January and February 2020, Comptay M had the following transactions pertaining to it held for trading investments: Apr. Purchased 2,000 Starr Corporation $5, preferred shares for $206,000 cash. July 1 Received quarterly cash dividend. 2 Sold 500 Starr shares for $57,500 cash. Oct. 1 Received quarterly cash dividend. Nov. 22 Start declared the quarterly dividend on November 22, to preferred shareholders of record on December 15, payable on January 1. Dec. 31 Starr's shares were trading at $116 per share. Due to an urgent need for cash, 700 Starr Corporation shares were sold despite a drop in the share price Jan. 31 to $92 per share. Feb. 15 Marshall sold an additional 500 Starr shares after the market recovered to $118 per share. Instructions a) Record the above transactions, using the fair value through profit or loss model. Prepare any required adjusting entries at December 31.

Answer 1

Fair value through profit or loss states that on the each balance sheet date, the assets and liability has to be measured at fair value. This would reflect the fair value where any movement between fair and book value is to be adjusted through income statement.

Date	Particulars	Debit ($)	Credit ($)
April 1	Investment in preferred shares- Starr	206,000
	Cash		206,000
July 1	Cash (2000*5*1/4)	2500
	Dividend revenue		2500
July 2,2019	Cash	57,500
	Realized gain on held for trading investments	6000
	Held for trading investments (206,000* 500/2000		51,500
Oct 1	Cash (1500*5*1/4)	1875
	Dividend revenue		1875
Dec 15	Dividend receivable	1875
	Dividend revenue		1875
Dec 31	Held for trading investments [1500*(116-103)	19,500
	Unrealized gain on held for trading investments		19,500
Jan 31,2020	Cash (700*92)	64,400
	Realized loss on held for trading investments	16800
	Held for trading investments (700*116)		81,200
Feb 15	Cash (500*118)	59,000
	Realized Gain on held for trading investments		1,000
	Held for trading investments (500*116)		58,000