Franzen Finance began operations in 2012 and invests in securities classified as trading securities. During 2012, it entered into the following trading security transactions:
Purchased 20,000 shares of ABC common stock at $ 38 per share
Purchased 32,000 shares of XYZ common stock at $ 17 per share
At December 31, 2012, ABC common stock was trading at $ 39.50 per share and XYZ common stock was trading at $ 16.50 per share.
1. Prepare the necessary adjusting entry to value the trading securities at fair market value.
2. Conceptual Connection: What is the income statement effect of this adjusting entry?