During 2013, Commercial Inc. purchased equity securities for trading. At December 31, 2013, the securities for Commercial Inc. were as follows:
Security Quantity Cost Market Value
Fahim common shares............1,500.........................$36,000.........................$39,000
PLJ common shares...............2,000...........................14,000...........................16,000
Total................................................................$50,000........................$55,000
The following transactions with respect to Commercial Inc.'s investments occurred during 2014:
Feb. 10 Purchased 2,500 common shares of Almira for $12.00 per share. The shares were purchased for trading.
Apr. 15 Sold 1,250 of the Fahim common shares for $27.00 per share.
June 15 Purchased an additional 1,000 of Fahim common shares for $27.50 per share.
Aug. 5 Received dividends on the PLJ common shares of $2.50 per share.
Oct. 15 Received an additional 250 common shares of Almira as a result of a 10% stock dividend.
At December 31, 2014, the securities held by Commercial Inc. were trading on the TSX at the following prices:
Security Price
Fahim common shares..........................$30.00
PLJ common shares................................6.00
Almira common shares...........................12.50
Instructions
(a) Show how the securities would be reported on Commercial Inc.'s December 31, 2013, balance sheet.
(b) Assuming that the purchases of Fahim and PLJ common shares were Commercial Inc.'s only investment transactions in 2013, show what would be reported in the company's December 31, 2013, income statement.
(c) Record Commercial Inc.'s 2014 transactions and any required adjusting journal entries at December 31, 2014.
Taking It Further
Calculate the total profit/loss (over the life of the investment) that Commercial Inc. made on the 1,250 Fahim common shares sold on April 15. Explain how and when it was recognized on the income statement.