Question

At December 31, 2010, Weston Manufacturing Co. owned the following investments in capital stock of publicly traded companies (classified as available-for-sale securities):


In 2011, Weston engaged in the following two transactions:
Apr. 10 Sold 1,000 shares of its investment in Footlocker, Inc., at a price of $21 per share, less a brokerage commission of $50.
Aug. 7 Sold 2,000 shares of its investment in The Gap, Inc., at a price of $14 per share, less a brokerage commission of $60.
At December 31, 2011, the market values of these stocks were: Footlocker, Inc., $18 per share; and The Gap, Inc., $16 per share.
Instructions
a. Illustrate the presentation of marketable securities and the unrealized holding gain or loss in Weston’s balance sheet at December 31, 2010. Include a caption indicating the section of the balance sheet in which each of these accounts appears.
b. Prepare journal entries to record the transactions on April 10 and August 7.
c. Prior to making a fair value adjustment at the end of 2011, determine the unadjusted balance in the Marketable Securities control account and the Unrealized Holding Gain (or Loss) on Investments account. (Assume that no unrealized gains or losses have been recognized since last year.)
d. Prepare a schedule showing the cost and the market values of securities owned at the end of 2011. (Use the same format as the schedule illustrated above.)
e. Prepare the fair value adjusting entry required at December 31, 2011.
f. Illustrate the presentation of the marketable securities and unrealized holding gain (or loss) in the balance sheet at December 31, 2011. (Follow the same format as in part a.)
g. Illustrate the presentation of the net realized gains (or losses) in the 2011 income statement. Assume a multiple-step income statement and show the caption identifying the section in which this amount would appear.
h. Explain how both the realized and unrealized gains and losses will affect the company’s 2011 income taxreturn.


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  • CreatedApril 17, 2014
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