3. Show how the bank reports these equity securities on its balance sheet at the end of the fourth quarter of 2019. Balance Sheet Instruction Southeast Bank Balance Sheet (partial) December 31, 2019 Current assets: Southeast Bank invests in equity securities and prepares quarterly financial statements. At the beginning of the fourth quarter of 2019, the bank held as an investment in equity securities 260 shares of Eglan Company common stock that originally cost $7,150. At that time, these securities had a fair value of $7,020. During the fourth quarter, the bank engaged in the following transactions: Oct. 26 Nov. 26 Dec. 10 Purchased 400 shares of Farrell Company common stock for $36 per share. Sold 260 shares of Eglan common stock for $26 per share. Purchased 410 shares of Gray Company common stock for $44 per share. On December 31, 2019, the quoted market prices of the shares were as follows: Eglan Company, $55 per share; Farrell Company, $39 per share; and Gray Company, $43 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 2019 income statement for these equity securities. 3. Show how the bank reports this investment in equity securities on its balance sheet at the end of the fourth quarter of 2019. 4. Next Level What justification does the FASB give for its treatment of unrealized holding gains and losses for trading securities? Chart of Accounts ASSETS REVENUE 111 Cash 411 Sales Revenue 113 Investment in Equity Securities 431 Interest Income 121 Accounts Receivable 122 Allowance for Doubtful Accounts EXPENSES 125 Notes Receivable 500 Cost of Goods Sold 141 Inventory 511 Insurance Expense 151 Supplies 512 Utilities Expense 152 Prepaid Insurance 513 Delivery Expense 515 Supplies Expense LIABILITIES 521 Advertising Expense 211 Accounts Payable 523 Salaries Expense 221 Notes Payable 531 Bad debt Expense 224 Interest Payable 539 Miscellaneous Expenses 231 Salaries Payable 540 Interest Expense 895 Loss on Sale of Equity Securities EQUITY 912 Unrealized Holding Gain/Loss: Equity Securities 311 Common Stock 331 Retained Earnings 351 Dividends 391 Income Summary 1. Prepare journal entries to record the 2019 transactions for the fourth quarter. General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 2. Show what the bank reports on its fourth quarter 2019 income statement for these equity securities. Income Statement Instructions Southeast Bank Income Statement (partial) For the Year Ended December 31, 2019 4. FASB requires unrealized gains and losses for equity securities to be reported as a component of income because The securities are actively managed making the inclusion of gains and losses relevant. All of the choices are correct The liquidity needs of the company mean the securities will be sold for cash in the near term. The nearness to cash of equity securities
