The investments of Charger Inc. include a single investment: 14,500 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 $42 per share.a. Journalize the entries to acquire the investment on February 24 and record the adjustment to fair value on December 31, Year 1.b. How is the unrealized gain or loss for trading investments reported on the financial statements?

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Asked Dec 20, 2019
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The investments of Charger Inc. include a single investment: 14,500 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 $42 per share.
a. Journalize the entries to acquire the investment on February 24 and record the adjustment to fair value on December 31, Year 1.
b. How is the unrealized gain or loss for trading investments reported on the financial statements?

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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.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Step 2

(a)

To journalize: The stock investment transactions in the books of Company C

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Prepare joumal entry for the purchase of 14,500 shares of Company R, at $38 per share. Debit Post. Credit Account Titles and Explanations Date Ref. (S) 551,000 (S) February 24 Investments-Company R Stock Cash 551,000 (To record purchase of shares for cash) Working Notes: Compute amount of cash paid to purchase Company R's stock. (Number of shares purchasedx Cash paid = Price per share = (14,500 shares x$38) = $551,000

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Step 3
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Prepare adjusting entry for valuation of trading securities transaction. Post Debit (S) Ref. Credit (S) Date Account Titles and Explanation 31 Vahuation Allowance for Trading Investments Unrealized Gain on Trading Investments |(To record unrealized gain on trading |securities) 58,000 December 58,000| Working Notes: Compute the unrealized gain (loss) as on December 31. Amount (S) S609,000 Details Trading investments at fair value, December 31 (14,500x $42) (551,000) Less: Trading investments at cost, December 31 (14,500x $38) Unrealized gain on trading investments $58.000

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