Question

XYZ Inc. began 2018 with a balance in the firm’s Investments in Trading Securities account. The original cost of this investment, made in 2017, was $398,000. An account had been established at the end of 2017 to reflect the purchase and the fact that market value of this investment at that time was $366,400. During 2018, a block of shares with an original cost of $45,000 was sold for $54,500 and a second block with an original cost of $30,000 was sold for $27,300. At the end of 2018, the market value of the remaining shares was $341,800. Show the opening balances in any relevant accounts and the required transactions for 2018.

Answer 1

In the end of 2017, XYZ Inc. must report its trading securities at fair market value (FMV). Any unrealized gain or loss must be reported through Income Statement.

Following entries need to be passed in the year 2017.

Date	Account Title & Description	Ref	Debit	Credit
31/12/2017	Unrealized Loss On Trading Securities		31600
	Trading Securties			31600
	Trading Securties are adjusted to market value
31/12/2017	Income Statement		31600
	Unrealized Loss On Trading Securities			31600
	Transfer of Unrealized loss to Income Statement

Following entries need to be passed in the year 2017.

Date	Account Title & Description	Ref	Debit	Credit
2018	Cash		54500
	Trading Securties			41427
	Gain on Sale of Trading Securities			13073
	Sale of Trading Securities
2018	Cash		27300
	Loss on Sale of Trading Securities		318
	Trading Securties			27618
	Sale of Trading Securities
31/12/2018	Income Statement		318
	Loss On Trading Securities			318
	Transfer of Realized loss to Income Statement
31/12/2018	Gain On Trading Securities		13073
	Income Statement			13073
	Transfer of Realized gain to Income Statement
31/12/2018	Trading Securties		44445
	Unrealized Gain On Trading Securities			44445
	Trading Securties are adjusted to market value
31/12/2018	Unrealized Gain On Trading Securities		44445
	Income Statement			44445
	Transfer of Unrealized gain to Income Statement

Workings:
original cost - Block 1		45000
Value on 31.12.2017	(45000*366400//398000)	41427
Gain/(Loss)	(54500-41427)	13073
(sale-Value)
original cost - Block 2		30000
Value on 31.12.2017	(30000*366400//398000)	27618
Gain/(Loss)	(27300-27618)	-318
(sale-Value)
Trading Securities Account:
Opening Balance - 2018	366400
Sale	-41427
Sale	-27618
Balance	297355
FMV - 31.12.2018	341800
Unrealized Gain	44445

TRADING SECURITIES ACCOUNT
01.01.2018	Balance b/d	366400	2018	Cash	41427
31.12.2018	Unrealized Gain On Trading Securities	44445	2018	Cash	27300
				Loss On Trading Securities	318
			31.12.2018	Balance c/d	341800