Monroe Auto Supplies engaged in several transactions involving short-term equity securities during 2011, shown in the following

Question:

Monroe Auto Supplies engaged in several transactions involving short-term equity securities during 2011, shown in the following list. The company had never invested in equity securities prior to 2011. All securities were classified as trading securities.

1. Purchased 1,000 shares of IBM for $50 per share.

2. Purchased 500 shares of General Motors for $80 per share.

3. Sold 750 shares of IBM for $60 per share.

4. Received a dividend of $1.50 per share from General Motors. Assume that the dividend was declared in a previous period.

5. Purchased 200 shares of Xerox for $40 per share.

6. Sold the remaining 250 shares of IBM for $30 per share.

7. Sold the 200 shares of Xerox for $58 per share.

8. Sold the 500 shares of General Motors for $60 per share.

a. Prepare journal entries for each transaction.

b. What effect did these transactions have on the company’s 2011 net income?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...