At December 31, year 1, Charter Holding Co. owned the following marketable securities in capital stock of

Question:

At December 31, year 1, Charter Holding Co. owned the following marketable securities in capital stock of publicly traded companies.

In year 2, Charter engaged in the following two transactions. Apr. 10 Sold 1,000 shares of its investment in L Brands, Inc., at a price of $58 per share, less a brokerage commission of $100. Aug. 7 Sold 2,000 shares of its investment in The Gap, Inc., at a price of $37 per share, less a brokerage commission of $150. At December 31, year 2, the market values of these stocks were: L Brands, Inc., $67 per share; and The Gap, Inc., $37 per share.

Instructions:
a. Illustrate the presentation of marketable securities and the unrealized holding gain or loss in Charter’s financial statements at December 31, year 1. Include a caption indicating the section of the financial statements in which each of these accounts appears.
b. Prepare journal entries to record the transactions on April 10 and August 7.
c. Prior to making a fair value adjustment at the end of year 2, determine the unadjusted balance in the Marketable Securities control account and the Unrealized Holding Gain (or Loss) on Investments account.
d. Prepare a schedule showing the cost and the market values of securities owned at the end of year 2.
e. Prepare the fair value adjusting entry required at December 31, year 2.
f. Illustrate the presentation of the marketable securities and unrealized holding gain (or loss) in the financial statements at December 31, year 2.
g. Illustrate the presentation of the net realized gains (or losses) in the year 2 income statement. Assume a multiple-step income statement and show the caption identifying the section in which this amount would appear.
h. Explain how both the realized and unrealized gains and losses will affect the company’s year 2 income tax return