Question: XYZ Company began operations in 2006. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement:
2006 2007 2008
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, 2009, XYZ owned the following trading securities:
Cost
AGH Common (15,000 shares) $450,000
DEL Preferred (2,000 shares) 210,000
Pratt Convertible bonds (100 bonds) 115,000
During 2009, the following events occurred:
1. Sold 5,000 shares of AGH for $170,000.
2. Acquired 1,000 shares of Norton Common for $40 per share. Brokerage commissions totaled $1,000.
At 12/31/09, the fair values for XYZ's trading securities were:
AGH Common, $28 per share
DEL Preferred, $110 per share
Pratt Bonds, $1,020 per bond
Norton Common, $42 per share
Instructions
Q1. Prepare a schedule which shows the balance in the Securities Fair Value Adjustment (Trading) at December 31, 2008 (after the adjusting entry for 2008 is made).
Q2. Prepare a schedule which shows the aggregate cost and fair values for Vu's trading securities portfolio at 12/31/09.
Q3. Prepare the necessary adjusting entry based upon your analysis in (2) above.