Perez Company began operations in 2009. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement:
2009 2010 2011
Gains (losses) from sale of trading securities $ 15,000 $(20,000) $ 14,000
Unrealized holding losses on valuation of trading securities (25,000) - (30,000)
Unrealized holding gain on valuation of trading securities - 10,000 -
At January 1, 2012, Perez owned the following trading securities:
Cost
BKD Common (15,000 shares) $450,000
LRF Preferred (2,000 shares) 210,000
Drake Convertible bonds (100 bonds) 115,000
During 2012, the following events occurred:
1. Sold 5,000 shares of BKD for $170,000.
2. Acquired 1,000 shares of Horton Common for $40 per share. Brokerage commissions totaled $1,000.
At 12/31/12, the fair values for Perez's trading securities were:
BKD Common, $28 per share
LRF Preferred, $110 per share
Drake Bonds, $1,020 per bond
Horton Common, $42 per share
Instructions
(a) Prepare a schedule which shows the balance in the Securities Fair Value Adjustment (Trading) at December 31, 2011 (after the adjusting entry for 2011 is made).
(b) Prepare a schedule which shows the aggregate cost and fair values for Perez's trading securities portfolio at 12/31/12.
(c) Prepare the necessary adjusting entry based upon your analysis in (b) above.