Question

The investments of Charger Inc. include a single investment: 19,710 shares of Raiders Inc. common stock purchased on February 24, Year 1, for $36 per share including brokerage commission. These shares were classified as trading securities. As of the December 31, Year 1, balance sheet date, the share price had increased to $43 per share. Required: A. Journalize the entries to acquire the investment on February 24, and record the adjustment to fair value on December 31, Year 1. Refer to the Chart of Accounts for exact wording of account titles. B. How is the unrealized gain or loss for trading investments reported on the financial statements?

Answer 1

Requirement A

February 24

Investment in Raiders Inc. (SFP) $709,560 (debit)

Cash (SFP) $709,560 (credit)

December 31

Investment in Raiders Inc.(SFP) $137,970 (debit)

Fair value adjustment in Investment (OCI) $137,970 credit

Requirement B.

It is eliminated for consolidation purposes

Step-by-step explanation:

February 24

Investment in Raiders Inc. (SFP) $709,560 (debit)

Cash (SFP) $709,560 (credit)

Investment = 19,710 shares × $36

= $709,560

December 31

Investment in Raiders Inc.(SFP) $137,970 (debit)

Fair value adjustment in Investment (OCI) $137,970 credit

Adjustment = 19,710 shares × ( $43 - $36)

= $137,970