Problem 4-1 Trading Securities Lincoln Company buys and sells securities expecting to earn prots on shortuterm differences in price. During 2017. Lincoln Company purchased the following trading securities: Fair Value Security Cost Dec. 31I 2017 A $ 195.000 $ 225.000 B 300.000 162.000 C 660.000 678.000 Before any adjustments related to these trading securities. Lincoln Company had a net income of $900,000. Required: 1. What is Lincoln Company's net income after making any necessary trading security adjustments? 2. What would Lincoln Company's net income be if the fair value of security B were $285,000? Problem 4-2 Trading Securities Marvel Company invested its excess cash in equity securities during 2016. The business model of these investments is to prot from trading on price changes. a. As of December 31, 2016, the equity investment portfolio consisted of the following: Investment Quantity Cost Fair Value LJ. Inc. 1.000 shares $ 45.000 $ 63.000 Polland Co. 2.000 shares 120.000 126.000 Allen Corp. 2.000 shares 216.000 180.000 Totals mm b. During the year 2017. Marvel Company sold 2,000 shares of Polland Co. for $114,600 and purchased 2,000 more shares of LJ. Inc. and 1.000 shares of Dwarf Company. On December 31 , 2017. Marvel Company's equity securities portfolio consisted of the following: Investment Quantity Cost Fair Value LJ.lnc. 1.000 shares 5 45.000 $ 60.000 LJ.lnc. 2.000 shares $ 99.000 $ 120.000 Dwarf Company 1.000 shares 48.000 36.000 Allen Corp. 2.000 shares 216.000 66.000 Totals 08,991] S 282,991] c. During the year 2018. Marvel Company sold 3,000 shares of LJ. Inc. for $119,700 and 500 shares of Dwarf Company at a loss of $8.100. On December 31. 2018. Marvel Company's equity investment portfolio consisted of the following: Investment Quantity Cost Fair Value Dwarf Company 500 shares 24.000 18.000 Allen Corp. 2.000 shares 216.000 246.000 Totals WW Required: 1. in the December 31, 2016, statement of nancial position. what should be reported as the carrying amount of the investments? 2. What is the gain or loss on the sale of Polland Co. investment? 3. What amount of unrealized gain or loss should be reported in the income statement for the year ended December 31, 2017? What should be reported as loss on sale of trading securities in 2018'? What amount of unrealized gain or loss should be reported in the income statement for the year ended December 31. 2018? .9193 Problem 4-3 Non-trading Equity Securities: Fair Value Changes in Other Comprehensive Income (OCI) During the course of your audit the financial statements of Fishbowl Corporation for the year ended December 31, 2016, you found a new account, "Investment in Equity Securities". Your audit revealed that during 2016, Fishbowl began a program of investments, and all investment related transactions were entered in this account. Your analysis of this account for 2016 follows: Fishbowl Corporation Analysis of Investment in Equity Securities For the year Ended December 31, 2016 Debit Credit OO (a) Salmon Company Ordinary Shares Feb. 14. Purchased 36,000 shares @$55 per share $ 1.980.000 July 26. Received 3,600 ordinary shares of Salmon Company as a stock dividend (Memorandum entry in general ledger) Sept. 28. Sold the 3,600 ordinary shares of Salmon Company received July 26 @$70 per share $ 252.000 ( b ) Tamarind, Inc. Ordinary Shares Debi Credit Apr. 30. Purchased 180,000 shares @$40 per share $ 7.200.000 Oct. 28. Received dividend of $1.20 per share $ 216.000 Additional information: a. The fair value for each security as of 2016 date of each transaction follow: Security Feb. 14._ Apr. 30 July 26 Sept. 28 Dec. 31 Salmon Company S 55 62 S 70 S 74 Tamarind, Inc. 40 32 Fishbowl Corporation 25 28 30 33 35 b. All of the investments of Fishbowl Corporation are normal in respect to percentage of ownership (5% or less) c. Each investment is considered by Fishbowl Corporation to be non-trading. Fishbowl Corporation has made an irrevocable election to present in other comprehensive income subsequent changes in fair value of its non-trading equity securities. Required: 1. What amount should be reported as gain or loss on sale of non-trading equity securities in the income statement of Fishbowl Corporation for the year ended December 31, 2016? 2. What entry is necessary to correct the recording of the cash dividend received from Tamban, Inc.? 3. What amount of unrealized gain or loss should be reported in the 2016 statement of comprehensive income as component of other comprehensive income? 4. What amount should be reported as Investment in Equity Securities in the statement of financial position on December 31, 2016? Problem 4-4 Investment in Bonds Shown below is an amortization schedule related to Angel Company's 5-year, $500,000 bond with 7% interest rate and a 5% yield purchased on December 31, 2016, for $543,300. Interest Interest Premium Carrying Date Receive Income Amortization Amount 12/31/16 $ 543.300 12/31/17 $35.000 27.165 7.835 535.465 12/31/18 35.000 26.773 8.227 527.238 12/31/19 35.000 26.362 8.638 518.600 12/31/20 35.000 25.930 9.070 509.530 12/31/21 35.000 25.470 9.530 500.000 The following shows a comparison of the amortized cost and fair value of the bonds at year-end: Amortized Cost Fair Value December 31, 2017 S 535.465 $ 532.500 December 31, 2018 527.238 537.500 December 31, 2019 518.600 528.250 December 31, 2020 509.530 515.000 December 31, 2021 500.000 500.000 Required: a. Prepare the journal entry to record the purchase of these bonds on December 31, 2016, assuming the bonds are held as financial assets measured at amortized cost. b. Prepare journal entry (ies) related to these bonds for 2017. c. Prepare journal entry (ies) related to these bonds for 2019. d. What should be reported as the carrying amount of these bonds in the statement of financial position on December 31, 2020