Purpose: (L.O. 2, 3, 5) This exercise will illustrate how to account for investments in trading and non-trading securities.
Accolades Cruise Company has two investment portfolios at the December 31, 2014 balance sheet date. The securities contained in these portfolios are all equity securities and were purchased during 2014, Accolades' first year of operations. None of the investments are accounted for by the equity method. No investments were sold during 2014. Details are as follows:
(a) Prepare the appropriate adjusting entry(s) at December 31, 2014.
(b) Explain how the data will be displayed on the balance sheet. Compute total stockholders' equity. (Assume at the balance sheet date, Accolades has a balance of $400,000 in its Common Stock account and $600,000 in its Retained Earnings account.) Also, explain what will appear and where on the income statement for the year ending December 31, 2014.
(c) Assuming the stock of DEF Co. is sold for $94,000 on January 7, 2015 and the stock of STU Co. is sold for $141,000 on January 8, 2015, prepare the journal entries to record these sales and explain where realized gains and losses will appear in the income statement for the year ending December 31, 2015.