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    Gains and losses in investments in trading securities

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    #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:
    Cost
    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

    Instructions
    (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.

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    Solution Summary

    The solution explains the calculation of gains and losses in investments in trading securities and the related journal entries

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