Problem 7.5A Accounting for Marketable Securities (LO7-1 ,LO7-4)

At December 31, 2014, Charter Holding Co. owned the following investments in capital stock of publicly traded companies (classified as available-for-sale securities):

		Cost	Current Market Value
Limited Brands, Inc. (5,000 shares: cost, $40 per share; market value, $44)	$	200,000		$	220,000
The Gap, Inc. (4,000 shares: cost, $40 per share; market value, $36)		160,000			144,000
	$	360,000		$	364,000

In 2015, Charter engaged in the following two transactions:

Apr.	10		Sold 1,000 shares of its investment in Limited Brands, Inc., at a price of $45 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 $35 per share, less a brokerage commission of $150.

At December 31, 2015, the market values of these stocks were: Limited Brands, Inc., $42 per share; and The Gap, Inc., $37 per share.

Instructions

a-1.	Calculate the amount of marketable securities in the balance sheet at December 31, 2014.

a-2.	Calculate the amount of unrealized holding gain (or loss) in the balance sheet at December 31, 2014.

b.	Prepare journal entries to record the transactions on April 10 and August 7. (If no entry is required for a transaction/event, select "No Journal entry required" in the first account field.)

c-1.	Prior to making a mark-to-market adjustment at the end of 2015, determine the unadjusted balance in the Marketable Securities control account. (Assume that no unrealized gains or losses have been recognized since last year.)

c-2	Prior to making a mark-to-market adjustment at the end of 2015, determine the Unrealized Holding Gain (or Loss) on Investments. (Assume that no unrealized gains or losses have been recognized since last year.)

d.	Prepare a schedule showing the cost and market values of securities owned at the end of 2015.

e.	Prepare the fair value adjusting entry required at December 31, 2015. (If no entry is required for a transaction/event, select "No Journal entry required" in the first account field.)

f-1.	Calculate the amount of marketable securities in the balance sheet at December 31, 2015.

f-2.	Calculate the amount of unrealized holding gain (or loss) in the balance sheet at December 31, 2015.

g.	Illustrate the presentation of the net realized gains (or losses) in the 2015 income statement. Assume a multiple-step income statement and show the caption identifying the section in which this amount would appear.