Question

Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1
Feb.	1.	Purchased 7,400 shares of Caldwell Inc. as a trading security at $38 per share plus a brokerage commission of $740.
May	1.	Purchased 1,700 shares of Holland Inc. as a trading security at $55 plus a brokerage commission of $187.
July	1.	Sold 3,850 shares of Caldwell Inc. for $36 per share less a $105 brokerage commission.
	31.	Received an annual dividend of $0.25 per share on Caldwell Inc. stock.
Dec.	31.	The portfolio of trading securities was adjusted to fair values of $36 and $54 per share for Caldwell Inc. and Holland Inc., respectively.

Record these transactions on page 11:

Year 2
Apr.	1.	Purchased 3,000 shares of Fuller Inc. as a trading security at $25 per share plus a $150 brokerage commission.
July	31.	Received an annual dividend of $0.45 per share on Caldwell Inc. stock.
Oct.	14.	Sold 600 shares of Fuller Inc. for $27 per share less a $60 brokerage commission.
Dec.	31	The portfolio of trading securities had a cost of $289,062 and a fair value of $366,663, requiring a debit balance in Valuation Allowance for Trading Investments of $77,601 ($366,663 - $289,062). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.

	Required:
1.	Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*
2.	Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*
3.	How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.? *Refer to the information given and the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31:

Record these transactions on page 10:

Year 1
Feb.	1.	Purchased 7,400 shares of Caldwell Inc. as a trading security at $38 per share plus a brokerage commission of $740.
May	1.	Purchased 1,700 shares of Holland Inc. as a trading security at $55 plus a brokerage commission of $187.
July	1.	Sold 3,850 shares of Caldwell Inc. for $36 per share less a $105 brokerage commission.
	31.	Received an annual dividend of $0.25 per share on Caldwell Inc. stock.
Dec.	31.	The portfolio of trading securities was adjusted to fair values of $36 and $54 per share for Caldwell Inc. and Holland Inc., respectively.

Record these transactions on page 11:

Year 2
Apr.	1.	Purchased 3,000 shares of Fuller Inc. as a trading security at $25 per share plus a $150 brokerage commission.
July	31.	Received an annual dividend of $0.45 per share on Caldwell Inc. stock.
Oct.	14.	Sold 600 shares of Fuller Inc. for $27 per share less a $60 brokerage commission.
Dec.	31	The portfolio of trading securities had a cost of $289,062 and a fair value of $366,663, requiring a debit balance in Valuation Allowance for Trading Investments of $77,601 ($366,663 - $289,062). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.

	Required:
1.	Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*
2.	Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*
3.	How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.? *Refer to the information given and the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

X

Chart of Accounts

CHART OF ACCOUNTS
Rios Financial Co.
General Ledger
ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 121 Allowance for Doubtful Accounts 131 Notes Receivable 132 Interest Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 161 Investments-Caldwell Inc. 162 Investments-Holland Inc. 163 Investments-Fuller Inc. 165 Valuation Allowance for Trading Investments 166 Valuation Allowance for Available-for-Sale Investments 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Notes Payable 231 Interest Payable 241 Salaries Payable 251 Sales Tax Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Treasury Stock 332 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 350 Unrealized Gain (Loss) on Available-for-Sale Investments 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 611 Interest Revenue 612 Dividend Revenue 631 Gain on Sale of Investments 641 Unrealized Gain on Trading Investments EXPENSES 511 Cost of Merchandise Sold 512 Bad Debt Expense 515 Credit Card Expense 516 Cash Short and Over 520 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 731 Loss on Sale of Investments 741 Unrealized Loss on Trading Investments

Amount Descriptions
Increase in retained earnings
Net income
Net loss
Other comprehensive income (loss)
Other income (loss)
Retained earnings, December 31, Year 2
Retained earnings, January 1, Year 2
Trading investments (at cost)
Trading investments (at fair value)

Answer 1

1	Date	Description					Debit	Credit
	Year 1
	Feb 1.	Investments-Caldwell Inc.			(7400*38)+740		281940
		Cash						52560
		(Purchased shares of Caldwell)
	May 1.	Investments-Holland Inc			(1700*55)+187		93687
		Cash						93687
		(Purchased shares of Holland)
	July 1.	Cash			(3850*36)-105		138495
		Loss on sale of investments			(Plug)		8190
		Investments-Caldwell Inc.			281940*(3850/7400)			146685
		(Sold 3850 shares of Caldwell)
	July 31.	Cash			(7400-3850)*0.25		887.5
		Dividend revenue						887.5
		(Dividend received)
	Dec 31.	Unrealized loss on trading investments					9342
		Valuation allowance for trading investments						9342
		(Note:1)
		(Investments recorded at fair value)
	Year 2
	Apr 1.	Investments-Fuller Inc.			(3000*25)+150		75150
		Cash						75150
		(Purchased shares of Fuller)
	July 31.	Cash			(3550*0.45)		1597.5
		Dividend revenue						1597.5
		(Dividend received)
	Oct 14.	Cash			(600*27)-60		16140
		Gain on sale of investments						1110
		Investments-Fuller Inc.			75150*(600/3000)			15030
		(Sold 600 shares of Fuller)
	Dec 31.	Valuation allowance for trading investments					86943
		Unrealized gain on trading investments				(9342+77601)		86943
		(Investments recorded at fair value)
	Note:1
		Number of shares	Cost per share	Fair value per share	Cost	Fair value
		a	b	c	a*b	a*c
	Caldwell	3550	38.1	36	135255	127800
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