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# Investments

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In 2005, KZF Inc. purchased stock as follows:

a. Acquired 2,000 shares of Gallery Arts Corp. common stock (par value \$20) in exchange for 1,200 shares of KZF Inc. preferred stock (par value \$30). The preferred stock had a market value of \$75 per share on the date of the exchange.

b. Purchased 800 shares of Champion Corp. common stock (par value \$10) at \$70 per share, plus a brokerage fee of \$800.

At December 31,2005, the market values of the securities were as follows:
Security Market Value
KZF Inc \$ 71
Gallery Arts Corp 41
Champion Corp. 72

The investments in common stock are classified by KZF Inc. as available-for-sale securities accounted for by the cost method. The fiscal year of KZF ends on December 31.

Required
1. Prepare all entries relating to the investments in common stock for 2005

2. Prepare the entry to record the sale of 200 shares of Champion Corp. common stock on January 15,2006, at \$74 per share.

3. Prepare the entry to reclassify the remaining 600 shares of Champion Corp. common stock from available-for sale securities to trading securities on January 31, 2006. The stock was selling at \$67 per share on that date.

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COMMENT FROM STUDENT:
I don't understand how there can be a cr of 4000 on profits from sale when they actually received 4000 more from GAC then they gave them. That's not a profit they spent 36000 ...

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Solution explains Investments

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