BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

Solutions

Chapter
Section
BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
1 views

Trading Securities

Pear Investments began operations in 2020 and invests in securities classified as trading securities. During 2020, it entered into the following trading security transactions:

Purchased 20,000 shares of ABC common stock at $38 per share Purchased 32,000 shares of XYZ common stock at $17 per share

At December 31, 2020, ABC common stock was trading at $39.50 per share and XYZ common stock was trading at $16.50 per share.

Required:

1. Prepare the necessary adjusting entry to value the trading securities at fair market value.

2. CONCEPTUAL CONNECTION What is the income statement effect of this adjusting entry?

To determine

(a)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To record:

Journal entry to record securities at fair value.

Explanation
Securities Acquisition Cost (1) Fair Value at Dec 31, 2020 (2) Difference [(2) − (1)]
ABC $760,000 $790,000 $30,000
XYZ $544,000 $528,000 ($16,000)
Total $1,304,000 $1,318,000 14,000
No. of shares Value per share Total
For ABC:

Acquisition Cost
Fair Value at Dec 31, 2020

20,000
20,000
$38
$39...
To determine

(b)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To explain:

The effect of adjusting entry on Income Statement.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Heavy computer use can negatively affect ones physical health. True or False?

Principles of Information Systems (MindTap Course List)

Calculate the heat loss from a double-pane glass window consisting of two pieces of glass, each having a thickn...

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

Find the magnitude and sense of the moment of the 60-lb force about points A and B.

International Edition---engineering Mechanics: Statics, 4th Edition

Calculate breakeven point.

Contemporary Marketing

FINDING THE REQUIRED INTEREST RATE Your parents will retire in 18 years. They currently have 250,000 saved, and...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is the AP/CD process?

Pkg Acc Infor Systems MS VISIO CD