Question

Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2016, the bank held as trading securities 280 shares of Eglan Company common stock that originally cost $7,560. At that time, these securities had a fair value of $7,280. During the fourth quarter, the bank engaged in the following trading securities transactions:

Oct. 26	Purchased 360 shares of Farrell Company common stock for $36 per share.
Nov. 26	Sold 280 shares of Eglan common stock for $25 per share.
Dec. 10	Purchased 390 shares of Gray Company common stock for $42 per share.

On December 31, 2016, the quoted market prices of the shares were as follows: Eglan Company, $53 per share; Farrell Company, $39 per share; and Gray Company, $41 per share.

Required:

1.	Prepare journal entries to record the 2016 transactions for the fourth quarter.
2.	Show what the bank reports on its fourth quarter 2016 income statement for these trading securities.
3.	Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2016.
4.	Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for trading securities?

CHART OF ACCOUNTS
Southeast Bank
General Ledger
ASSETS 111 Cash 113 Investment in Trading Securities 121 Accounts Receivable 122 Allowance for Doubtful Accounts 125 Notes Receivable 141 Inventory 151 Supplies 152 Prepaid Insurance LIABILITIES 211 Accounts Payable 221 Notes Payable 224 Interest Payable 231 Salaries Payable EQUITY 311 Common Stock 331 Retained Earnings 351 Dividends 391 Income Summary	REVENUE 411 Sales Revenue 431 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Delivery Expense 515 Supplies Expense 521 Advertising Expense 523 Salaries Expense 531 Bad debt Expense 539 Miscellaneous Expenses 540 Interest Expense 895 Loss on Sale of Investment 912 Unrealized Gain/Loss

Amount DescriptionsGain on Sale of Trading SecuritiesInvestment in Available-for-Sale SecuritiesInvestment in Trading Securities (at fair value)Investment in Trading Securities (at cost)Loss on Sale of Trading SecuritiesUnrealized Loss on Increase in Value of Trading Securities

Prepare journal entries to record the 2016 transactions for the fourth quarter.

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

Show what the bank reports on its fourth quarter 2016 income statement for these trading securities. Additional Instructions

Southeast Bank

Income Statement (partial)

For the Year Ended December 31, 2016

1
2

Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2016. Additional Instructions

Southeast Bank

Balance Sheet (partial)

December 31, 2016

1	Current assets:
2

Answer 1