Question

In: Accounting

On May 11, 2015, Fedra Company began buying investments in common shares. Management intends to trade...

On May 11, 2015, Fedra Company began buying investments in common shares. Management intends to trade these shares for a profit. On May 11, 2015, Fedra purchased 3,200 common shares of S Stores at 94.00 per share and a $120 brokerage fee. On May 16, 2015, Fedra purchased 2,000 additional shares of S Stores for $87.00 per share and a $100 brokerage fee. On May 18, Fedra purchased 1,200 shares of B Corp for $68.00 per share and a $80 brokerage fee. On May 20, Fedra purchased 600 more shares of S Stores at $90 per share and a $60 brokerage fee. On May 29, Fedra sold 4,800 of these shares at $104 less a $90 brokerage fee.

Please explain each answer why

  1. Would these shares be classified as Trading, AFS or HTM?
  2. Would these shares be classified as long-term or short-term?
  3. Would these shares be classified as debt or equity?
  4. How much gain or loss is recognized on May 29 when the 4,800 shares are sold? Fedra uses the weighted average method. Show calculations using a table format

Solutions

Expert Solution

1. These are classified as Trading as they are going to sell for profit in near term and shown under current assets in Balance sheet.

2. As these are held for trading to earn profit from sale. They need to be treated as 'Short Term'

3. The purchase of common shares of other corporates are to be treated as Equity Investments

4. Computation of Gain recognised on sale of investments

a. Computation of cost of shares sold

b. Computation of Net Revenue from Sale of Shares

Net Revenue from Sale of Shares = $104 * 4800 - $90

Net Revenue from Sale of Shares = $499110

c. Computation of Gain from sale of shares

Gain from sale of shares = Net revenue - Cost of shares sold

Gain from sale of shares = $499110 - $418806.86

Gain from sale of shares = $80303.14

ekkarill92 answered 1 year ago
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