Question

Stock Investment Transactions, Trading Securities

Zeus Investments Inc. is a regional investment company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Zeus Investments Inc., which has a fiscal year ending on December 31:

Year 1
Feb. 14.	Purchased 3,600 shares of Apollo Inc. as a trading security at $29 per share plus a brokerage commission of $720.
Apr. 1.	Purchased 1,700 shares of Ares Inc. as a trading security at $12 per share plus a brokerage commission of $340.
June 1.	Sold 900 shares of Apollo Inc. for $30 per share less an $120 brokerage commission.
June 27.	Received an annual dividend of $0.15 per share on Apollo stock.
Dec. 31.	The portfolio of trading securities was adjusted to fair values of $33 and $13 per share for Apollo Inc. and Ares Inc., respectively.
Year 2
Mar. 14.	Purchased 1,600 shares of Athena Inc. as a trading security at $34 per share plus a $240 brokerage commission.
June 26.	Received an annual dividend of $0.18 per share on Apollo Inc. stock.
July 30.	Sold 300 shares of Athena Inc. for $28 per share less a $90 brokerage commission.
Dec. 31.	The portfolio of trading securities had a cost of $143,975 and fair value of $138,700, requiring a credit balance in Valuation Allowance for Trading Investments of $5,275 ($143,975 - $138,700). Thus, the debit balance from December 31, Year 1 is to be adjusted to the new balance.

Required:

1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. In your computations, round per share amounts to two decimal places. When required, round final answers to the nearest dollar.

Date	Description	Debit	Credit
Year 1
Feb. 14	Investments-Apollo Inc.
	Cash
Apr. 1	Investments-Ares Inc.
	Cash
June 1	Cash
	Gain on Sale of Investments
	Investments-Apollo Inc.
June 27	Cash
	Dividend Revenue
Dec. 31	Valuation Allowance for Trading Investments
	Unrealized Gain on Trading Investments
Year 2
Mar. 14	Investments-Athena Inc.
	Cash
June 26	Cash
	Dividend Revenue
July 30	Cash
	Loss on Sale of Investments
	Investments-Athena Inc.
Dec. 31	Unrealized Loss on Trading Investments
	Valuation Allowance for Trading Investments

2. Prepare the investment-related current asset balance sheet presentation for Zeus Investments Inc. on December 31, Year 2.

Zeus Investments Inc. Balance Sheet (selected items) December 31, Year 2
Current Assets:
Trading Investments (at Cost)
Less Valuation Allowance For Trading Investments
Trading Investments (at Fair Value)

3. How are unrealized gains or losses on trading investments presented in the financial statements of Zeus Investments Inc.?

Unrealized gains or losses are reported in the income statement , often as Other Income (Losses) .

Answer 1

Required 1
Date                      Description            Debit                  Credit
Year 1
Feb. 14   Investments-Apollo Inc.   $105,120
                          Cash                                                  $105,120

Apr. 1 Investments-Ares Inc.         $20,740
                       Cash                                                      $20,740

June 1    Cash                                     $26,880
                 Gain on Sale of Investments                   $600
                 Investments-Apollo Inc.                          $26,280
($105,120/ 3600 = 29.2, 29.2× 900 =26,280)

June 27 Cash                                      $405
                 Dividend Revenue                                       $405
(3600 - 900 = 2700 × $0.15 =405)

Dec. 31 Valuation Allowance for-   $11,620
                      Trading Investments
               Unrealized Gain on Trading-                      $11,620
                                       Investments

                       cost                fair value
Apollo inc       78,840             89,100(3600- 900 =2700×33=89100)
Ares Inc         20,740             22,100
Total               99,580             111,200
= 111,200 - 99,580 = $11,620
    
Year 2
Mar. 14   Investments-Athena Inc.    $54,640
                                 Cash                                            $54,640

June 26       Cash                                     $486
                       Dividend Revenue                                 $486

July 30       Cash                                       $8310
              Loss on Sale of Investments    $1935
              Investments-Athena Inc.                           $10,245

Dec. 31 Unrealized Loss on Trading -      $16,895
                                      Investments
            Valuation Allowance for -                              $16,895
                         Trading Investments


Required 2

                           Zeus Investments Inc.
                  Balance Sheet (selected items)
                        December 31, Year 2
Current Assets:
Trading Investments (at Cost)                               $143,975
Less Valuation Allowance For Trading Investments $5275
Trading Investments (at Fair Value)                     $138,700

Required 3
       Unrealized gains or losses are disclosed in the income statement, often as “Other Income (Losses).” For year1, Zeus Investments Inc. would have disclosed an unrealized gain of $11,620 as “Other Income.” For year 2, Zeus Investments Inc. would have disclosed an unrealized loss of $16,895 as “Other Losses.” If unrealized gains and losses were significant for Zeus Investments, then they would be separately disclosed on the income statement.