Perez Company Began Operations in 2013

question 78

Essay

Perez Company began operations in 2013. Since then, it has reported the following gains and losses for its investments in trading securities on the income statement: During 2016, the following events occurred:1. Sold 5,000 shares of BKD for $170,000."2. Acquired 1,000 shares of Horton Common for $40 per share. Brokerage commissions totaled $1,000.At 12/31/16, the fair values for Perez's trading securities were:BKD Common, $29 per shareLRF Preferred, $110 per shareDrake Bonds, $1,020 per bondHorton Common, $45 per share
Instructions
(a) Prepare a schedule which shows the balance in the Fair Value Adjustment (trading) account at December 31, 2015 (after the adjusting entry for 2015 is made).
(b) Prepare a schedule which shows the aggregate cost and fair values for Perez's trading securities portfolio at 12/31/16.
(c) Prepare the necessary adjusting entry based upon your analysis in (b) above."

---

Definitions:

Profit Motive

The primary incentive for businesses to operate and expand, driven by the pursuit of financial gain.

Pareto Efficient

A state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.

Net Benefit

The total positive impact of a decision or action, subtracting any costs or negative effects associated with it.

Trade

The exchange of goods, services, or both between parties, which can occur domestically or internationally.