Question

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

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)

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

Answer 1

Date	Particulars	Debit	Credit
Year 1
Feb.1	Trading Investments - Cladwell Inc	281940
	Cash (7400 shares x $38)+$740		281940
May. 1	Trading Investments -Holland Inc	93687
	Cash (1700 shares x $55)+$187		93687
July.1	Cash (3850 shares x $36)-105	138495
	Loss on Sale	8190
	Trading Investments - Cladwell Inc ($281,940/7400 x 3850shares)		146685
July. 31	Cash	887.5
	Dividend Revenue - Cladwell  (7400 - 3850)shares x $.25		887.5
Dec. 31	Unrealized Loss on Trading Investments ($228,942 -$219600)	9342
	Valuation Allowance for Trading Investments		9342
		# shares	Cost per share = Trading investment/# shares purchased	Fair value per share	Cost = # shares x Cost per share	fair value = # shares x fair value per share
	Cladwell Inc	3,550	38.1	36	135255	127800
	Holland Inc.	1,700	55.11	54	93687	91800
	Total				228942	219600
	Valuation Allowance for Trading Investments Jan 1		0
	Trading Investment at cost December 31	228942
	Less: Trading Investment at fair value December 31	219600
	Valuation Allowance for Trading Investments Dec 31		9342	Cr.
	Adjustment		9342	Cr.
Year 2
Apr.1	Trading Investments - Fuller Inc	75150
	Cash (3000 shares x $25)+$150		75150
July.31	Cash	1597.5
	Dividend Revenue - Cladwell  (7400 - 3850) shares x $.45		1597.5
Oct.14	Cash (600 shares  x $27)-60	16140
	Gain on Sale		1110
	Trading Investments - Fuller Inc ($75,150/3000) x 600		15030
Dec.31	Valuation Allowance for Trading Investments ($9342 + $77,601)	86943
	Unrealized gain on Trading Investments		86943
		# shares	Cost per share = Trading investment/# shares purchased	Cost = # shares x Cost per share
	Cladwell Inc	3,550	38.1	135255
	Holland Inc.	1,700	55.11	93687
	Fuller Inc.	2,400	25.05	60120
	Total			289062
2)
	Rio's Financial Co.
	Balance sheet
	Current Assets
	Trading Investments	289,062.00
	Add: Valuation Allowance for Trading Investments	77,601.00
	Trading Investments at Fair value	366,663.00
3)	Unrealized gain and losses are disclosed in income statement as other income or losses.
	For Year 1, Rio's Financial Inc. would have disclosed an unrealized gain of $9,342 as “Other Income.” For Year 2 ,Rio's financial Inc. would have disclosed an unrealized loss of $86943 as “Other Losses.” If unrealized gains and losses were significant for Rio's financial, then they would be separately disclosed on the income statement