Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth

Question:

Southeast Bank invests in trading securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2013, the bank held as trading securities 200 shares of Eglan Company common stock that originally cost $5,500. At that time, these securities had a fair value of $5,200. During the fourth quarter, the bank engaged in the following trading securities transactions:

Oct. 26 Purchased 300 shares of Farrell Company common stock for $35 per share.

Nov. 26 Sold 200 shares of Eglan common stock for $25 per share.

Dec. 10 Purchased 400 shares of Gray Company common stock for $41 per share.

On December 31, 2013, the quoted market prices of the shares were as follows: Eglan Company, $52 per share;

Farrell Company, $38 per share; and Gray Company, $40 per share.

Required:

1. Prepare journal entries to record the preceding information for the fourth quarter.

2. Show what the bank reports on its fourth quarter 2013 income statement for these trading securities.

3. Show how the bank reports these trading securities on its balance sheet at the end of the fourth quarter of 2013.

4. Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for trading securities?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...