Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

EXERCISE 12-3

Purpose: (L.O. 3, 5) This exercise will illustrate how to record and report transactions related to an investment in stock classified as trading securities.

The Charlie Daley Corporation had the following transactions pertaining to a temporary investment in equity securities classified as trading (transactions are listed in chronological order):

1. Purchased 1,000 shares of PW Corporation common stock for $25,000 cash plus $370 in brokerage fees.
2. Received cash dividends of $2 per share on PW common stock.
3. Sold 400 shares of PW common stock for $11,000 less brokerage fees of $170.
4. Received cash dividends of $2 per share on PW common stock.
5. Sold 300 shares of PW common stock for $7,200 less brokerage fees of $100.
6. Adjusted the accounts and prepared financial statements. The market price of PW common stock at the balance sheet date was $26 per share.

Instructions

1. (a) Prepare all of the relevant journal entries to record the transactions and events listed above.
2. (b) List the resulting account balances at December 31 and also indicate the classification of each of the accounts (other than Cash) used in the journal entries.

TIP: In this exercise, the Fair Value Adjustment—Non Trading account has a debit balance at the balance sheet date so its balance is added in the asset classification. In cases where that account has a credit balance at a reporting date, its balance is a negative component in the asset classification.

TIP: In this exercise, the Unrealized Gain or Loss—Equity ...