Falcon Wholesalers purchased equity securities during 2016 and 2017 that it classified as trading securities. It had not purchased equity securities prior to 2016, and has purchased no other equity securities besides the following:
Purchase Purchase Fair Value Fair Value Date Selling
Security Date Price 12/31/16 12/31/17 Sold Price
1 12/3/16 $20,000 $22,000 N/A 1/3/17 $21,000
2 12/10/16 24,000 18,000 N/A 1/7/17 20,000
3 12/4/17 16,000 N/A 19,000 1/9/18 19,000
4 12/13/17 33,000 N/A 7,000 1/8/18 42,000
Prepare all necessary journal entries for 2016 and 2017 related to these securities.
What will be an ideal response?
Answer:
12/3/16 Trading Equity Investments - Cost 20,000
Cash 20,000
12/10/16 Trading Equity Investments - Cost 24,000
Cash 24,000
12/31/16 Unrealized Loss - Net Income 4,000
Fair Value Adjustment - Trading Equity Securities 4,000
((20,000 + 24,000) - (22,000 + 18,000))
1/3/17 Cash 21,000
Realized Gain - Net Income 1,000
Trading Equity Investments - Cost 20,000
(21,000 - 20,000)
1/7/17 Cash 20,000
Realized Loss - Net Income 4,000
Trading Equity Investments - Cost 24,000
(20,000 - 24,000)
12/4/17 Trading Equity Investments - Cost 16,000
Cash 16,000
12/13/17 Trading Equity Investments - Cost 33,000
Cash 33,000
12/31/17 Fair Value Adjustment - Trading Equity Securities 11,000
Unrealized Gain - Net Income 11,000
((19,000 + 37,000) - (16,000 + 33,000) = 7,000 desired debit balance)
(7,000 desired debit balance + 4,000 credit balance)
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