Leonard Company has been in business for 3 years. In 2011, it reported a loss of...

Leonard Company has been in business for 3 years. In 2011, it reported a loss of $10,000 on trading securities. In 2012, there was a $5,000 gain. Finally, in 2013 the company had a $20,000 loss. As of the beginning of 2014 the company owned 15,000 shares of Shimkus Corp., 2,000 shares of Newton Corp., and 100 shares of Lathrop, Inc. The original cost of the shares was $450,000, $210,000, and $115,000, respectively. During 2014, Leonard sold 5,000 shares of Shimkus Corp. for $170,000 and acquired 1,000 shares of Smith Corp. for $40 per share. At year-end the Shimkus Corp. was $28 per share, Newton Corp. was $110 per share, Lathrop, Inc. was $1020 per share, and Smith Corp. was $42 per share.

Prepare a schedule (or a t-account) that shows the cumulative balance in adjustment to market account at December 31, 2013.

Expert Solution

Prepare a T-account to show the cumulative balance in adjustment to market account at December 31, 2013, as follows:

Market Adjustment - Trading
			10000	Adjust.	2011
			10000	End. Bal.	2011
2012	Adust.	15000	10000	Beg. Bal.	2012
2012	End. Bal.	5000
2013	Beg. Bal.	5000	25000	Adjust.	2013
			20000	End. Bal.	2013

Cumulative balance in adjustment to market account at December 31, 2013, is $20,000.

Explanation:

Loss reported in 2011 is $10,000. Therefore, a adjustment of the same amount will be made for that year.

In 2012, gain of $5,000 was reported. So the market adjustment account should have a debit balance of $5,000. However, it has a credit balance of $10,000. Therefore, an adjustment of $15,000 will be made in 2012 to get a debit balance of $5,000.

In 2013, loss of $20,000 was reported. So the market adjustment account should have a credit balance of $20,000. However, it has a debit balance of $5,000. Therefore, an adjustment of $25,000 will be made in 2013 to get a credit balance of $20,000.

ekkarill92 answered 1 year ago

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