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:

Question

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.

Helga · Answer

Seurities Fair Value Adjustment (Trading) Account

Securities Fair Value Adjustment (Trading)
+ (Gain) - (Loss)

25,000 Ending Balance 12/31/2009
Adjusting entry on 12/31/2010 35,000
Ending Balance on 12/31/2010 10,000
40,000 Adjusting entry on 12/31/2011
30,000 Ending Balance 12/31/2011
Adjusting entry on 12/31/2012 8,000
22,000 Ending Balance 12/31/2012

Beginning Balance 01/01/2009 $0
Adjusting entry 12/31/2009 ($25,000) Credit
Ending Balance 12/31/2009 ($25,000) Credit Balance

Beginning Balance 01/01/2010 ($25,000) Credit Balance
Adjusting entry 12/31/2010 $35,000 Debit
Ending Balance 12/31/2010 $10,000 Dedit Balance

Beginning Balance 01/01/2011 $10,000 Debit Balance
Adjusting entry 12/31/2011 ($40,000) Credit Balance
Ending Balance 12/31/2011 ($30,000) Credit Balance

Beginning Balance 01/01/2012 ($30,000) Debit Balance
Adjusting entry 12/31/2012 $8,000 Credit Balance
Ending Balance 12/31/2012 ($22,000) Credit Balance

Adjusting Entery at the end of the year

December 31, 2011
Unrealized Holding Gain or Loss- Income 40,000
Securities Fair Value Adjustment (Trading) 40,000
Adjusting entry to bring Trading Securities to Fair Value.

B)

Perez Company
Trading Equity Security Portfolio
December 31, 2011

Investments Cost Fair Value Unrealized Gain (Loss)
BKD Common (10,000 shares) $300,000 $280,000 ($20,000)
LRF Preferred (2,000 shares) 210,000 220,000 10,000
Drake Convertible Bonds (100 Bonds) 115,000 102,000 ($13,000)
Horton Common (1,000 shares) 41,000 42,000 1,000

Total of the Portfolio $666,000 $644,000 ($22,000)

C)

December 31, 2011
Securities Fair Value Adjustment (Trading) 8,000
Unrealized Holding Gain or Loss- Income 8,000
Adjusting entry to bring trading securities to Fair Value.

Previous Securities Fair Value Adjustment Balance (Credit Balance) ($30,000)
Securities Fair Value Adjustment- Dedit $8,000
Ending Balance 12/31/2011 ($22,000) Credit Balance