Last Unguaranteed Financial Inc. purchased the following trading securities during 2014, its first year of operations

Last Unguaranteed Financial Inc. purchased the following trading securities during 2014, its first year of operations:


Name Number of Shares Cost
Arden Enterprises Inc. 5,000 $150,000
French Broad Industries Inc. 2,750 66,000
Pisgah Construction Inc. 1,600 104,000
Total $320,000


The market price per share for the trading security portfolio on December 31, 2014, was as follows:
Market Price per Share,
Dec. 31, 2014
Arden Enterprises Inc. $34
French Broad Industries Inc. 26
Pisgah Construction Inc. 60


a. Provide the journal entry to adjust the trading security portfolio to fair value on December 31, 2014.

b. Assume the market prices of the portfolio were the same on December 31, 2015, as they were on December 31, 2014. What would be the journal entry to adjust the portfolio to fair value?


Answer:

2014
Dec. 31 Valuation Allowance for Trading
Investments* 17,500
Unrealized Gain on Trading Investments 17,500
Ex. 15–17
a.
* $337,500 – $320,000, as determined from the following schedule:
Cost
Fair Value
(Dec. 31, 2014)
1 Arden Enterprises, Inc. ………………………………………………………… $150,000 $170,000
French Broad Industries, Inc. ………………………………………………… 66,000 71,500
2
3
Pisgah Construction, Inc. ……………………………………………………… 104,000 96,000
Total………………………………………………………………………….. $320,000 $337,500
1 5,000 shares × $34 per share
2 2,750 shares × $26 per share
3 1,600 shares × $60 per share
b. There would be no adjusting entry for December 31, 2015, if the market prices
remained unchanged from December 31, 2014. This is because the unrealized
gain from the difference between the cost and market has already been
recognized on December 31, 2014. Only changes in market prices would be
recognized subsequent to December 31, 2014.