#6 XYZ Company began operations in 2006. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement:
2006 2007 2008
Gains (losses) from sale of trading securities $ 15,000 $(20,000) $ 14,000
Unrealized holding losses on valuation of trading securities (25,000) - (30,000)
Unrealized holding gain on valuation of trading securities - 10,000 -
At January 1, 2009, XYZ owned the following trading securities:
AGH Common (15,000 shares) $450,000
DEL Preferred (2,000 shares) 210,000
Pratt Convertible bonds (100 bonds) 115,000
During 2009, the following events occurred:
1. Sold 5,000 shares of AGH for $170,000.
2. Acquired 1,000 shares of Norton Common for $40 per share. Brokerage commissions totaled $1,000.
At 12/31/09, the fair values for XYZ's trading securities were:
AGH Common, $28 per share
DEL Preferred, $110 per share
Pratt Bonds, $1,020 per bond
Norton Common, $42 per share
(a) Prepare a schedule which shows the balance in the Securities Fair Value Adjustment (Trading) at December 31, 2008 (after the adjusting entry for 2008 is made).
(b) Prepare a schedule which shows the aggregate cost and fair values for Vu's trading securities portfolio at 12/31/09.
(c) Prepare the necessary adjusting entry based upon your analysis in (b) above.
The solution explains the calculation of gains and losses in investments in trading securities and the related journal entries