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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 15, Problem 14E
Textbook Problem
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JED Capital Inc. makes investments in trading securities. Selected income statement items for the years ended December 31, Year 2 and Year 3, plus selected items from comparative balance sheets, are as follows:

Chapter 15, Problem 14E, JED Capital Inc. makes investments in trading securities. Selected income statement items for the , example  1

Chapter 15, Problem 14E, JED Capital Inc. makes investments in trading securities. Selected income statement items for the , example  2

There were no dividends.

Determine the missing lettered items.

To determine

Find the missing amounts (a) to (i).

Explanation of Solution

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

(a)

Compute operating income for Year 2.

Operating incomefor Year 2} =     Net income for Year 2    –  Unrealized gain (loss) for Year 2={Retained earnings, Year 2–Retained earnings, Year 1}{Valuation allowance, Year 2–Valuation allowance, Year 1}=($245,000–$210,000)($17,000–($12,000))= $35,000–$29,000= $6,000

(b)

Compute unrealized gain (loss) for Year 2.

Unrealized gain(loss)for Year 2} =  {Valuation allowance, Year 2–Valuation allowance, Year 1}=($17,000–($12,000))= $29,000

(c)

Compute net income for Year 2.

Net incomefor Year 2} ={Retained earnings, Year 2–Retained earnings, Year 1}   =($245,000–$210,000)= $35,000

(d)

Compute trading investments for Year 1.

Trading investments for Year 1 }={ Trading investments, at cost, Year 1Valutaion allowance, loss}= $144,000–$12,000= $132,000

(e)

Compute operating income for Year 3

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Chapter 15 Solutions

Financial Accounting
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