The following transactions relate to Waterway Investments for 2011 and 2012. Waterway closes its books on December 31 each year.
2011
July 20 Waterway purchased 5,000 common shares of Meta-Solid Corporation at $20 per share, plus a brokerage commission of 1% of the purchase price. Waterway sent a cheque to its stockbroker for the total amount.
September 13 Meta-Solid Corporation declared a dividend of $0.50 per share, to be paid on October 4.
October 9 Waterway Investments received the dividend cheque from Meta-Solid Corporation.
December 31 The market value of Meta-Solid Corporation's common shares was $25 per share.
2012
January 19 Waterway sold the common shares of Meta-Solid Corporation at $24.50 per share. A brokerage commission of 1% of the total proceeds was deducted, and Waterway received a cheque from its stockbroker for the net amount.
Required:
a. Prepare journal entries to record the preceding transactions and events in the books of Waterway Investments, assuming that the shares are considered a short-term, held-for-trading investment.
b. What amount would be reported for this investment in Waterway's balance sheet on December 31, 2011?
c. What amount of gain or loss would be reported with respect to this investment in 2011? In 2012?
d. What was the overall rate of return earned on this investment?