Question

The investments of Charger Inc. include a single investment: 14,560 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 $41 per share.

Required:

A.	Journalize the entries to acquire the investment on February 24, and record the adjustment to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles.
B.	How is the unrealized gain or loss for trading investments reported on the financial statements?

Answer 1

Journal entry to acquire the investment on February 24

Trading securites of Raiders Inc. A/c Dr 553,280

To Bank A/c 553,280

(Being securities of Raiders Inc purchased as trading securities)

The adjustment to fair value on December 31, Year 1

Valuation allowance Dr 43,680

To Unrealized gain on trading securities 43,680

(Being unrealised gain on trading securities accounted for.)

How is the unrealized gain or loss for trading investments reported on the financial statements?

If there is unrealised gain or loss for trading investments, it is recognized in the income statement as a gain or loss.

Valuation allowance will be shown on the balance sheet according to the nature whether it has credit balance or debit balance.