Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31:
Feb 1 – Purchased 7500 shares of Caldwell Inc as a trading security at $50 per share plus a brokerage commission of $75.
May 1. – Purchased 3000 shares of Holland Inc. as a trading security at $42 plus a brokerage commission of $90.
July 1 – Sold 4500 shares of Caldwell for $46 per share less a $110 brokerage commission.
July 31 – Received an annual dividend of $.50 per share on Caldwell Inc. stock.
Dec. 31 – The portfolio of trading securities was adjusted to fair values of $47 and $40 per share for Caldwell Inc. and Holland Inc., respectively.
Apr 1 – Purchased 5000 shares of Fuller Inc. as a trading security at $25 per share plus a $100 brokerage commission.
July 31. Received an annual dividend of $.52 per share on Caldwell Inc.stock.
Oct. 14 – Sold 1000 shares of Fuller Inc. for $28 per share less a $110 brokerage commission.
Dec. 31 – The portfolio of trading securities had a cost of $376,200 and a fair value of $420,000, requiring a debit balance in Valuation Allowance for Trading Investment of $43,800 ($420,000-$376,000). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.
1. Journalize the entries to record these transactions
2. Prepare the investment-related current asset balance sheet presentation for Rios Financial Co. on December 31, Year 2.
3. How are unrealized gains or losses on trading investments presented in the financial statements of Rios Financial Co.?