Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1....

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:

Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*

Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*

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.

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:

Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*

Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*

How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.?

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)

Solutions

Expert Solution

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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Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1....

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