Question

Midwest Bank invests in trading securities. At the beginning of December 2018, the bank held no trading securities. During December of 2018, it entered into the following trading securities transactions:

Dec. 10	Purchased 500 shares of Carroll Company common stock for $76 per share.
Dec. 21	Purchased 800 shares of Dynamo Company common stock for $34 per share.

At the end of December, the Carroll Company common stock had a quoted market price of $79 per share, and the Dynamo Company common stock had a quoted market price of $33 per share.

Required:

1.	Prepare journal entries to record the December 2018 transactions.
2.	What is the unrealized holding gain or loss, and where is it reported in the 2018 financial statements?
3.	Show how the bank reports the trading securities on its December 31, 2018, balance sheet.
4.	Next Level If Midwest uses IFRS, how would the accounting be different from U.S. GAAP?

Answer 1

Answer

1.

Journal entries

Date	Particulars	Dr	Cr
Dec, 2018	Investment in trading securities	$65200
	Bank/cash		$65200
	(Being purchased Shares)

Total cost:

Carroll company 500 shares At $76 per shares             =$38000

Dynamo company 800 shares At $34 per shares          =$27200

                               Total Cost                                                 =$65200

2. Unrealized holding gain or loss

Date	Shares	Cost	Fair Value	Change in fair value
31 dec	500 shares of Carroll Company	$38000 (500*76)	$39500 (500*79)	$1500
	500 shares of Carroll Company	$27200 (800*34)	$26400 (800*33)	($800)
	Total	$65200	$65900	$700

Journal Entries

Date	Particulars	Dr	Cr
Dec,31,2018	Investment in trading securities	$700
	unrealized holding gain		$700

3.

Balance sheet of Midwest corporation on Dec 31, 2013 For trading Securities:

The Midwest Corporation Reports the investment as an assets at the $65900 Fair value Of the Securities.

4.

There will be No diffence in IFRS And GAAP in trading Securities, as in both methods the fair value is recorded in net income in trading securities.