Question

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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 7,500 shares of Caldwell Inc. as a trading security at $50 per share plus a brokerage commission of $75.
May	1.	Purchased 3,000 shares of Holland Inc. as a trading security at $42 plus a brokerage commission of $90.
July	1.	Sold 4,500 shares of Caldwell Inc. for $46 per share less a $110 brokerage commission.
	31.	Received an annual dividend of $0.50 per share on Caldwell Inc. stock.
Dec.	31	The portfolio of trading securities was adjusted to fair values of $47 and $40 per share for Caldwell Inc. and Holland Inc., respectively.

Record these transactions on page 11:

Year 2
Apr.	1.	Purchased 5,000 shares of Fuller Inc. as a trading security at $25 per share plus a $100 brokerage commission.
July	31.	Received an annual dividend of $0.52 per share on Caldwell Inc. stock.
Oct.	14.	Sold 1,000 shares of Fuller Inc. for $28 per share less a $110 brokerage commission.
Dec.	31	The portfolio of trading securities had a cost of $376,200 and a fair value of $420,000, requiring a debit balance in Valuation Allowance for Trading Investments of $43,800 ($420,000 - $376,200). 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.
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.

Journal

1a. Journalize the entries to record Year 1 transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. In your computations, round per share amounts to two decimal places.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8
9
10		Adjusting Entries
11
12

1b. Journalize the entries to record Year 2 transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. In your computations, round per share amounts to two decimal places.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5
6
7
8		Adjusting Entries
9
10

Balance Sheet

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

Balance Sheet (selected items)

December 31, Year 2

1	Current assets:
2
3
4

Answer 1

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
Year 1
01-Feb	Investment in Caldwell Inc	$3,75,075.00
	Cash		$3,75,075.00
	(record the purchase of shares )
01-May	Investment in Holland Inc	$1,26,090.00
	Cash		$1,26,090.00
	(record the purchase of shares )
01-Jul	Cash	$2,06,890.00
	Loss on sale of Investments	$18,155.00
	Investment in Caldwell Inc		$2,25,045.00
	(record the sale of 3,800 shares - Caldwell inc.)
31-Jul	Cash	$1,500.00
	Investment Revenue		$1,500.00
	(Record the dividend recd from Caldwell Inc.)
31-Dec	Unrealized Loss on Trading Investments	$15,120.00
	Valuation Allowance for Trading Investments		$15,120.00
	(Record the Fair value adjustment of Trading securities)
Year 2
01-Apr	Investment in Fuller Inc	$1,25,100.00
	Cash		$1,25,100.00
	(record the purchase of shares )
31-Jul	Cash	$1,560.00
	Investment Revenue		$1,560.00
	(Record the dividend recd from Caldwell Inc.)
14-Oct	Cash	$27,890.00
	Investment in Caldwell Inc		$25,020.00
	Gain on sale of Investments		$2,870.00
	(Sale recorded)
31-Dec	Valuation Allowance for Trading Investments	87,994.00
	Unrealized Gain on Trading Investments		87,994.00
	(Record the Fair value adjustment of Trading securities)

Fair value adjustment

Year 1	No. of Shares	Cost	Fair Value	Difference
Caldwell Inc.	3000	$1,50,030.00	$1,41,000.00	$(9,030.00)
Holland Inc.	3000	$1,26,090.00	$1,20,000.00	$(6,090.00)
Total		$2,76,120.00	$2,61,000.00	$(15,120.00)
Year 2		Cost	Fair Value	Difference
Total		$3,76,200.00	$4,20,000.00	$(43,800.00)
Add: Balance - Year 1				$(15,120.00)
				$(58,920.00)

BALANCE SHEET
Current assets:
Trading investment	$3,76,200.00
ADD: Valuation allowance for trading investment	$43,800.00
Total Current Asset		$4,20,000.00