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    Trading securities for Manhattan Co

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    I am confused about this problem. Do I have to do like a balance sheet reporting and income statement?What about the trading securities? Where do they go?


    Manhattan Co. purchased the following investments during 2007:
    Date Stock Cost
    Feb 1 Bourbon $80,000
    Mar. 15 Turkey 20,000
    June 10 Brandy 50,000
    Sept. 12 J. Daniels 75,000

    The company classifies investments in Bourbon and Daniels Co. as trading securities and the others as available for sale securities. At year-end the stocks had the following market values: Bourbon - $90,000, Turkey - $15,000, Brandy - $55,000, and Daniels Co. - $78,000.

    In addition to the above, on January 1, Manhattan purchased 40% of Cherry Co. for $600,000. This purchase gave Manhattan significant influence over Cherry which during the year reported net income of $320,000 and they paid dividends of $40,000. The year-end market value of the investment was $620,000.

    Indicate how the above investments would:
    a. affect the income statement for the year. (Be specific and give dollar amounts).
    b. be reported, and at what values, in the balance sheet.

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    Solution Preview

    We only need to give the effect on the income statement and the balance sheet. Trading securities are reported as current assets in the balance sheet and available for sale securities are reported in the balance sheet under investments. The difference between the two is that the difference between the cost and market value for trading securities is reported in the income statement while the difference between the cost and market value for available for sale securities is reported in the balance sheet in the ...

    Solution Summary

    The solution explains the impact of trading securities on income statement and how the securities would be reported in the balance sheet