To show the purchase of the securities and adjust the

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Unformatted text preview: c. to show the purchase of the securities, and adjust the securities to fair value at 12/31/13. securities Type TS TS Name Mining Inc Toys and Things Totals No. of Shares 1,000 1,500 12/22/13 12/31/13 Unrealized Unit Total Fair Gain or Cost Cost Value (Loss) $ 42.00 $ 42,000 $ 41,000 $ (1,000) 15.00 22,500 20,000 (2,500) $ 64,500 $ 61,000 $ (3,500) 12-12 Trading Securities December 22, 2013 Investment in Mining Inc. stock Investment in Toys and Things stock Cash Security Cost 42,000 22,500 64,500 Fair Value Adjustment Mining Inc $ 42,000 $ 41,000 Toys and Things 22,500 20,000 Total $ 64,500 $ 61,000 Existing balance in fair value adjustment Change needed in fair value adjustment $ (1,000) (2,500) $ (3,500) -0$ (3,500) Reported on the balance sheet as Reported on the balance sheet as a adjunct account to the investment. a adjunct account to the investment. December 31, 2013 Net unrealized holding gains and losses – I/S Fair value adjustment The Net Unrealized Holding Loss is The Net Unrealized Holding Loss is reported on the Income Statement. reported on the Income Statement. 3,500 3,500 12-13 Trading Securities On January 3, 2014, Matrix sold all trading securities for $65,000 cash. Let’s record the entry for the sale and the adjustment to the fair value adjustment account. January 3, 2014 Cash Investment in Mining, Inc. stock – T/S Investment in Toys and Things stock – T/S Gain on sale of investment January 3, 2014 Fair value adjustment Net unrealized holding gains or losses – I/S 65,000 42,000 22,500 500 3,500 3,500 12-14 Financial Statement Presentation Trading securities are presented on the financial statement as follows: 1. Income Statement and Statement of Comprehensive Income: Fair value changes are included in the income statement in the periods in which they occur, regardless of whether they are realized or unrealized. Investments in trading securities do not affect other comprehensive income. 2. Balance Sheet: Securities are reported at fair value, typically as current assets, and do not affect accumulated other comprehensive income in shareholders’ equity. 3. Cash Flow Statement: Cash flows from buying and selling trading securities typically are classified as operating activities, because the investors that hold trading securities consider them as part of their normal operations. 12-15 Financial Statement Presentation Presented below are the partial financial statements showing the accounting for TS owned by Matrix: Income S tatement Revenue Expenses Other income (expenses): Gain on sale of investment Realized and unrealized gains and losses on investments Total expenses Net income Balance S heet Assets: Trading securities S tatement of Cash Flows (direct method) Operating Activities: Cash from investment revenue Purchase of trading securities S of trading securities ale 2013 2014 t t t t t (3,500) t t 500 3,500 t t 61,000 -0- -0(64,500) -0- -0-065,000 12-16 Securities Available­for­Sale Investments in debt or equity securities that are not for active trading and not to be held to maturity are classified as available-for-sale (AFS). Adju...
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This document was uploaded on 03/12/2014.

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