Problem 1: Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term difference in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2011 and the first week of 2012.
2011
Dec 17 Purchased 100,000 Grocers' Supply Corporation preferred shares for $350,000.
28 Received cash dividends of $2,000 from the Grocers' Supply Corporation preferred shares.
31 Recorded any necessary adjusting entry relating to Grocers; Supply Corporation
2012
Jan 5 Sold the Grocers' Supply corporation preferred shares for $395,000
Required:
1. Prepare the appropriate journal entry for each transaction
2. Indicate any amounts that Rantzow-Lear Company would report in its 2011 balance sheet and income statement as a result of this investment.
Problem 2: On February 18, 2011, Union Corporation purchased 10,000 shares of IBM common stock as a long-term investment at $60 per share. On December 31, 2011 and December 31, 2012, the market value of IBM stock is $58 and $61 per share, respectively.
Required:
1. What is the appropriate reporting category for this investment? Why?
2. Prepare the adjusting entry for December 31, 2011
3. Prepare the adjusting entry for December 31, 2012