Year 1 Feb. Purchased 7,500 shares of Caldwell Inc. as a trading; .security at $50 per share plus a brokerage commission of $75. May Purchased 3,000 shares of Holland Inc. as a trading security at $42 plus a brokerage commission of $90. July Sold 4,500 shares of Caldwell Inc. for $46 per share less a $110 brokerage commission. 1 1. 1. Received an annual dividend of $0.50 per share on Caldwell Inc. stock. 31. The portfolio of trading securities was adjusted to fair values of $47 and $40 per share for Caldwell Inc. and Holland Inc., respectively. Dec. 31 Year 2 Apr. Purchased 5,000 shares of Fuller Inc. as a trading security at $25 per share plus a $100 brokerage commission. July Received an annual dividend of $0.52 per share on Caldwell Inc. 1. 31. stock. Oct. Sold 1,000 shares of Fuller Inc. for $28 per share less a $110 brokerage commission. The portfolio of trading securities had a cost of $376,200 and a 14. fair value of $420,000, requiring a debit balance in Valuation. Dec. Allowance for Trading Investments of $43,800 ($420,000- 31. $376,200). Thus, the credit balance from December 31, Year 1, is to be adjusted to the new balance.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Stock investment transactions, trading securities
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:
Instructions
1.
2. Prepare the investment-related current asset
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.?
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