Question

The investments of Charger Inc. include a single investment: 14,560 shares of Raiders Inc. common stock purchased on February 24, Year 1, for $38 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 $41 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?

CHART OF ACCOUNTS
Charger Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Raiders Inc. Stock 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 621 Income of Raiders Inc. 631 Gain on Sale of Investments 641 Unrealized Gain (Loss) on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 721 Loss of Raiders Inc. 731 Loss on Sale of Investments

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

JOURNAL
					ACCOUNTING EQUATION
DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
Feb 24, year 1	Investments-Raiders Inc. Stock	161	553280		553280
	Cash (14560 shares x $38)	110		553280	-553280
Dec 31, year 1	Valuation Allowance for Trading Investments	165	43680		43680
	Unrealized Gain (Loss) on Trading Investments	641		43680			43680
	(14560 shares x ($41 - $38)
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 income statement as "other income"   (or a separate item if significant). In determining net income, unrealized losses and gains would be added in determining net income.