Question

Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1

Feb. 1. Purchased 4,700 shares of Caldwell Inc. as a trading security at $36 per share plus a brokerage commission of $470.

May 1. Purchased 1,800 shares of Holland Inc. as a trading security at $48 plus a brokerage commission of $198.

July 1. Sold 2,440 shares of Caldwell Inc. for $34 per share less a $105 brokerage commission.

31. Received an annual dividend of $0.35 per share on Caldwell Inc. stock.

Dec. 31. The portfolio of trading securities was adjusted to fair values of $34 and $47 per share for Caldwell Inc. and Holland Inc., respectively.

Record these transactions on page 11:

Year 2

Apr. 1. Purchased 3,500 shares of Fuller Inc. as a trading security at $31 per share plus a $175 brokerage commission.

July 31. Received an annual dividend of $0.40 per share on Caldwell Inc. stock.

Oct. 14. Sold 700 shares of Fuller Inc. for $33 per share less a $55 brokerage commission.

Dec. 31 The portfolio of trading securities had a cost of $255,124 and a fair value of $331,594, requiring a debit balance in Valuation Allowance for Trading Investments of $76,470 ($331,594 - $255,124). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.

Required:

1. Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*

2. Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*

3. How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.?

*Refer to the information given and the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

CHART OF ACCOUNTS

Rios Financial Co.

General Ledger

ASSETS

110 Cash

111 Petty Cash

120 Accounts Receivable

121 Allowance for Doubtful Accounts

131 Notes Receivable

132 Interest Receivable

141 Merchandise Inventory

145 Office Supplies

146 Store Supplies

151 Prepaid Insurance

161 Investments-Caldwell Inc.

162 Investments-Holland Inc.

163 Investments-Fuller Inc.

165 Valuation Allowance for Trading Investments

166 Valuation Allowance for Available-for-Sale Investments

181 Land

191 Store Equipment

192 Accumulated Depreciation-Store Equipment

193 Office Equipment

194 Accumulated Depreciation-Office Equipment

LIABILITIES

210 Accounts Payable

221 Notes Payable

231 Interest Payable

241 Salaries Payable

251 Sales Tax Payable

EQUITY

311 Common Stock

312 Paid-In Capital in Excess of Par-Common Stock

321 Preferred Stock

322 Paid-In Capital in Excess of Par-Preferred Stock

331 Treasury Stock

332 Paid-In Capital from Sale of Treasury Stock

340 Retained Earnings

350 Unrealized Gain (Loss) on Available-for-Sale Investments

351 Cash Dividends

352 Stock Dividends

390 Income Summary

REVENUE

410 Sales

611 Interest Revenue

612 Dividend Revenue

631 Gain on Sale of Investments

641 Unrealized Gain on Trading Investments

EXPENSES

511 Cost of Merchandise Sold

512 Bad Debt Expense

515 Credit Card Expense

516 Cash Short and Over

520 Salaries Expense

531 Advertising Expense

532 Delivery Expense

533 Repairs Expense

534 Selling Expenses

535 Rent Expense

536 Insurance Expense

537 Office Supplies Expense

538 Store Supplies Expense

561 Depreciation Expense-Store Equipment

562 Depreciation Expense-Office Equipment

590 Miscellaneous Expense

710 Interest Expense

731 Loss on Sale of Investments

741 Unrealized Loss on Trading Investments

Answer 1