   Chapter 15, Problem 15.14EX

Chapter
Section
Textbook Problem

Missing statement items, trading investmentsJED Capital Inc. makes investment 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: JED Capital Inc. Selected Income Statement Items For the Years Ended December 31, Year 2 and Year 3   Year 2 Year 3 Operating income a. e. Unrealized gain (loss) b. $(11,000) Net income c. 28,000 JED Capital Inc. Selected Balance Sheet Items December 31, Year 1, Year 2, and Year 3 Dec. 31, Year 1 Dec. 31. Year 2 Dec 31, Year 3 Trading investments, at cost$144,000 $168,000$205,000 Valuation allowance for trading investments (12,000) 17,000 g. Trading investments, at fair value d. f. h. Retained earnings $210,000$245,000 i. There were no dividends.Determine the missing lettered items.

To determine

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

Explanation

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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