Question

Investment in Equity Securities with No Significant Influence

Investment in Equity Securities with No Significant Influence Zyggy Corporation invests in the stock of other companies for trading purposes. Zyggy has the following investment activity during 2018, 2019, and 2020:

• Purchased stock of Allen Corporation on February 3, 2018, for $160,000. The investment was sold on June 18, 2018, for $168,000.
• Purchased stock of Becker Corporation on October 29, 2018, for $320,000. The investment had a fair value of $304,000 on December 31, 2018, and was sold for $324,000 on March 1, 2019.
• Purchased stock of Corey Corporation on November 1, 2018, for $480,000. Its fair value on December 31, 2018 and 2019 was $512,000 and $408,000, respectively. The investment was sold for $400,000 on February 15, 2020.

b. What gains and losses are reported on Zyggy’s income statements for 2018, 2019, and 2020?

Use a negative sign with answers to indicate a net loss, if applicable.

Answer 1

Trading Securities are always reported on the balancesheet as a current asset at fair value .Therfore any change between the cost price and fair value is adjusted through Fair value adjustment Account. Any Unrealised Gain or los should be reported on the income statement. Realised Gain/loss should also be reported on the income statement.

For Instance ,In Corey Corporation Relaised Gain on investment is $80000 (sales price - original cost) .Investment was orginally bought for 480000 and sold for $400000 ,so overall loss of $80000 was incurred. For reporting purposes ,this loss is spread between 3 years.A gain of 32000 was reflected in year 1 as a result of appreciation in value and a loss of $104000 in year 2 as a result of depreciation of value.Finaly stock fell by $8000 prior to its sale. Thusoverall $80000 loss as incurred on investment (32000+(-104000)+(-8000)).