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Journal entries for securities transactions; gain or loss

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E17-11 (Equity Securities Entries) Arantxa Corporation made the following cash purchases of securities
during 2007, which is the first year in which Arantxa invested in securities.

1. On January 15, purchased 10,000 shares of Sanchez Company's common stock at $33.50 per share
plus commission $1,980.
2. On April 1, purchased 5,000 shares of Vicario Co.'s common stock at $52.00 per share plus commission
3. On September 10, purchased 7,000 shares of WTA Co.'s preferred stock at $26.50 per share plus
commission $4,910.

On May 20, 2007, Arantxa sold 4,000 shares of Sanchez Company's common stock at a market price of
$35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share
were: Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Arantxa told you that
Arantxa Corporation plans to hold these securities for the long term but may sell them in order to earn
profits from appreciation in prices.

(a) Prepare the journal entries to record the above three security purchases.
(b) Prepare the journal entry for the security sale on May 20.
(c) Compute the unrealized gains or losses and prepare the adjusting entries for Arantxa on
December 31, 2007.

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Solution Summary

The solution examines journal entries for securities transactions. The gains and losses are determined.

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Requirement A
January 15
DR: Available-for-Sale Investments - Sanchez 336,980
CR: Cash 336,980

April 1
DR: Available-for-Sale Investments - Vicario 263,370
CR: Cash 263,370

September ...

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