Question

Question #3:

Rosenberg, Inc. has the following classified as trading securities at the end of December, 2017.

Cost                            Fair Value

Goldberg$ 20,000$ 19,000

Silverberg$9,500 $8,800

T Berg$ 20,000$ 20,600

During 2018 the company sold its Silverberg stock for $9,200 and recorded a $400 gain on sale.

At the end of December 2018, the market values of Goldberg and T Berg were $19,900 and $20,500 respectively.

(a) How should these securities be valued on the December 31, 2017 balance sheet? Why?

(b) Is the sale of the Silverberg stock properly recorded?

(c) What journal entries should be made for the Goldberg and T Berg securities at 12/31/18?

Answer 1

(a)

The securities are trading securuties. These securities should be valued at their fair market values on the December 31, 2017, balance sheet because these are short-term assets and the company intends to sell them quickly. So the current market value that is the realizable value of these securities on the balance sheet date should be reported on the balance sheet.

(b)

Yes, the sale of Silverberg stock is recorded properly. On December 31, 2017, a loss of $700 ($9,500 - $8,800) would have been recognized to report the Silverberg Stock at fair market value. Therefore, now when the stock is sold for an amount in excess if its recorded value, a gain equal to the difference between the selling price and the recorded value should be recognized.

(c)

The following journal entry will be made for the Goldberg and T Berg securities at 12/31/18:

Date	Account Titles and Explanation	Debit	Credit
12/31/18	Fair Value Adjustment - Trading	800
	Unrealized Gain or Loss		800