Question

Fair Value Journal Entries, Trading Investments

The investments of Charger Inc. include a single investment: 7,000 shares of Raiders, Inc. common stock purchased on February 24, Year 1, for $32 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 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?

The unrealized gain or unrealized loss for trading investments is disclosed in the ____ as ______ .

Answer 1

Journal Enties

Feb, 14

Investment in Shares of Raider Inc Dr 224,000 (7000*32)

To Cash 224,000

( Being Investments made in shares)

Dec 31, 2014

Trading Securities ( i..e. Investment in shares of RAIDERS INC)Dr 70000 (42-32)*7000)

To Unrealised gain on trading securities 70000

B)

In the present case unrealized gain of $70,000 is credited to income statement account as investments are not yet sold these are unrealized gain on trading investments. However, if unrealized loss is recognized, it should be debited to income statement account.