Pear Investments began operations in 2020 and invests in securities classified as trading securities.
During 2020, it entered into the following trading security transactions:
Purchased 20,000 shares of ABC common stock at $38 per share
Purchased 32,000 shares of XYZ common stock at $17 per share
At December 31, 2020, ABC common stock was trading at $39.50 per share and XYZ common stock was trading at $16.50 per share.
Required:
1. Prepare the necessary adjusting entry to value the trading securities at fair market value.
2. What is the income statement effect of this adjusting entry?