Early last year, you invested $400,000 in cash in the common stock of 3M and Zebra Technologies. During the first year that these securities were held, 3M paid dividends of $1.92 per share and Zebra paid no dividends. At December 31 of last year, the following values were reported for these investments:

COST MARKET

3M (2,000 shares: cost, $100 per share; market value $80 per share) $200,000 160,000

Zebra Tech. (10,000 shares: cost $20 per share; market $24 per share) $200,000 240,000

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Early in the current year, you sold 500 shares of 3M and 1,000 shares of Zebra at the market. Ten minutes later your stock broker reported to you that both transactions had been executed. Total sales proceeds for you were $42,500 for the 3M shares and $23,000 for the Zebra shares.

Instructions:

a. Separately compute your unreal gain/loss in each of these investments as of December 31 of last year (above dotted line). Indicate the total unrealized gain/loss that will appear in last years financial statements and make the mark to market adjustment.

b. Prepare two separate journal entries to record the sale of the 3M shares and Zebra shares early in the current year.

c. Briefly comment about the liquidity, risk, and potential return of investments in common stocks relative to, say, cash equivalents that are very safe and yield a sure return of say 4%. Cite data from this problem in support of your comments.

d. How much real money did you make/lose on each of these two stocks?