In: Accounting
Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31: Record these transactions on page 10: Year 1 Feb. 1. Purchased 6,300 shares of Caldwell Inc. as a trading security at $41 per share plus a brokerage commission of $630. May 1. Purchased 1,700 shares of Holland Inc. as a trading security at $47 plus a brokerage commission of $187. July 1. Sold 3,280 shares of Caldwell Inc. for $39 per share less a $110 brokerage commission. 31. Received an annual dividend of $0.35 per share on Caldwell Inc. stock. Dec. 31. The portfolio of trading securities was adjusted to fair values of $39 and $46 per share for Caldwell Inc. and Holland Inc., respectively. Record these transactions on page 11: Year 2 Apr. 1. Purchased 2,700 shares of Fuller Inc. as a trading security at $28 per share plus a $135 brokerage commission. July 31. Received an annual dividend of $0.40 per share on Caldwell Inc. stock. Oct. 14. Sold 540 shares of Fuller Inc. for $30 per share less a $55 brokerage commission. Dec. 31 The portfolio of trading securities had a cost of $264,797 and a fair value of $341,549, requiring a debit balance in Valuation Allowance for Trading Investments of $76,752 ($341,549 - $264,797). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.
Required: 1. Journalize the entries to record these transactions. Round all final amounts to the nearest whole dollar.*
2. Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.*
3. How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.? *Refer to the information given and the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.
CHART OF ACCOUNTSRios Financial Co.General Ledger
ASSETS | |
110 | Cash |
111 | Petty Cash |
120 | Accounts Receivable |
121 | Allowance for Doubtful Accounts |
131 | Notes Receivable |
132 | Interest Receivable |
141 | Merchandise Inventory |
145 | Office Supplies |
146 | Store Supplies |
151 | Prepaid Insurance |
161 | Investments-Caldwell Inc. |
162 | Investments-Holland Inc. |
163 | Investments-Fuller Inc. |
165 | Valuation Allowance for Trading Investments |
166 | Valuation Allowance for Available-for-Sale Investments |
181 | Land |
191 | Store Equipment |
192 | Accumulated Depreciation-Store Equipment |
193 | Office Equipment |
194 | Accumulated Depreciation-Office Equipment |
LIABILITIES | |
210 | Accounts Payable |
221 | Notes Payable |
231 | Interest Payable |
241 | Salaries Payable |
251 | Sales Tax Payable |
EQUITY | |
311 | Common Stock |
312 | Paid-In Capital in Excess of Par-Common Stock |
321 | Preferred Stock |
322 | Paid-In Capital in Excess of Par-Preferred Stock |
331 | Treasury Stock |
332 | Paid-In Capital from Sale of Treasury Stock |
340 | Retained Earnings |
350 | Unrealized Gain (Loss) on Available-for-Sale Investments |
351 | Cash Dividends |
352 | Stock Dividends |
390 | Income Summary |
REVENUE | |
410 | Sales |
611 | Interest Revenue |
612 | Dividend Revenue |
631 | Gain on Sale of Investments |
641 | Unrealized Gain on Trading Investments |
EXPENSES | |
511 | Cost of Merchandise Sold |
512 | Bad Debt Expense |
515 | Credit Card Expense |
516 | Cash Short and Over |
520 | Salaries Expense |
531 | Advertising Expense |
532 | Delivery Expense |
533 | Repairs Expense |
534 | Selling Expenses |
535 | Rent Expense |
536 | Insurance Expense |
537 | Office Supplies Expense |
538 | Store Supplies Expense |
561 | Depreciation Expense-Store Equipment |
562 | Depreciation Expense-Office Equipment |
590 | Miscellaneous Expense |
710 | Interest Expense |
731 | Loss on Sale of Investments |
741 | Unrealized Loss on Trading Investments |
Amount Descriptions
Increase in retained earningsNet, incomeNet lossOther comprehensive income (loss)Other income (loss)Retained earnings, December 31, Year 2Retained earnings, January 1, Year 2Trading investments (at cost)Trading investments (at fair value)
1a. Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. In your computations, round per share amounts to two decimal places. Round all final amounts to the nearest whole dollar.
2. Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2. Refer to the information given and the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. For those boxes in which you must enter subtracted or negative numbers use a minus sign.