Question
Asked Dec 20, 2019
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The income statement for Delta-tec Inc. for the year ended December 31, Year 2, was as follows:

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The balance sheet dated December 31, Year 1, showed a Retained Earnings balance of $825,000. During Year 2, the company purchased trading investments for the first time at a cost of $346,000. In addition, trading investments with a cost of $66,000 were sold at a gain during Year 2. The company paid $65,000 in dividends during Year 2.
a. Determine the December 31, Year 2, Retained Earnings balance.
b. Provide the December 31, Year 2, balance sheet presentation for Trading Investments.

Delta-tec Inc.
Income Statement (selected items)
For the Year Ended December 31, Year 2
Income from operations
$299,700
Gain on sale of investments
17,800
Unrealized loss on trading investments
(72,500)
Net income
$245,000
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Delta-tec Inc. Income Statement (selected items) For the Year Ended December 31, Year 2 Income from operations $299,700 Gain on sale of investments 17,800 Unrealized loss on trading investments (72,500) Net income $245,000

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Expert Answer

Step 1

Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.

Step 2

(a)

To determine: The balance of retained earnings...

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Compute the retained eamings balance as December 31, Year 2 Retained earnings, Year 1+] ={Net income- Retained earnings for Year 2 Dividends =(S825,000+$245,000–865,000) = $1,005,000

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