Question

8th State Bank prepares interim financial statements and follows an investment strategy of investing in trading securities. At the beginning of the third quarter of 2018, the bank held the following portfolio of trading securities:

Security	Cost	June 30, 2018 Fair Value
100 shares of Gordan Company common stock	$2,900	$2,800
600 shares of Olivia Company common stock	12,000	12,600
Totals	$14,900	$15,400

During the third quarter of 2018, the bank entered into the following trading securities transactions:

July 2	Received dividends of $1.50 per share on the Gordan Company common stock.
14	Sold 600 shares of Olivia Company common stock for $20 per share.
Aug. 9	Purchased 300 shares of Porter Company common stock for $36 per share.
24	Sold 100 shares of Gordan Company common stock for $30 per share.
Sept. 17	Purchased 500 shares of Union Company common stock for $22 per share.

On September 30, 2018, the Porter Company common stock had a quoted market price of $36.50 per share and the Union Company common stock had a quoted market price of $21 per share.

Required:

1.	Prepare journal entries to record the preceding information.
2.	Show what the bank reports on its third quarter 2018 income statement for these trading securities.
3.	Show how the bank reports these trading securities on its September 30, 2018, balance sheet. CHART OF ACCOUNTS8th State BankGeneral Ledger ASSETS 111 Cash 113 Investment in Trading Securities 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue 431 Interest Income 432 Dividend Income 435 Gain on Sale of Trading Securities EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 895 Loss on Sale of Trading Securities 910 Income Tax Expense 912 Unrealized Holding Gain/Loss: Trading Securities

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
2-Jul	Cash	150.00		100 Shares X $1.50
	Dividend Income		150.00
	(record the dividend received from Gordon Company Common Stock)
14-Jul	Cash	12,000.00		600 shares X $20
	Investment in Olivia Company Stock		12,000.00	600 shares X $20
	(record the sale of Olivia Company Common Stock)
9-Aug	Investment in Porter Company Stock	10,800.00		300 shares X $36
	Cash		10,800.00	300 shares X $36
	(record the purchase of Porter Company Common Stock)
24-Aug	Cash	3,000.00		100 Shares X $30
	Investment in Gordon Company Stock		2,900.00
	Gain on sale of Investment		100.00	$3,000 - $100
	(record the sale of DT Common Stock)
17-Sep	Investment in Union Company Stock	11,000.00		500 Shares X $22
	Cash		11,000.00	500 Shares X $22
	(record the purchase of Union Company Common Stock)
30-Sep	Unrealized Holding Gain / Loss: Trading Security	850.00
	Valuation Allowance for Trading Investments		850.00
	(record the unrealized loss on trading investments)

	Cost	Fair Value	Difference
Porter Company - 300 Shares	10,800.00	10,950.00	150.00
Union Company - 500 shares	11,000.00	10,500.00	(500.00)
Total	21,800.00	21,450.00	(350.00)
Less: Valuation allowance, Beginning Balance			(500.00)
Unrealized Loss			(850.00)
Answer 2.
Income Statement
Dividend Revenue	150.00
Gain on Sale of Investment	100.00	250.00
Statement of Comprehensive Income
Net Unrealized Holding Gains	(850.00)
Answer 3.
Balance Sheet
Assets
Current Assets
Trading Securities	21,800.00
Add: Fair Value Adjustments	(350.00)	21,450.00