The income statement for Delta-tec Inc. for the year ended December 31, Year 2, was as follows:

Income from operations $299,700

Gain on sale of investments 17,800

Unrealized loss on trading investments (72,500)

Net income $245,000

The balance sheet dated December 31, Year 1, showed a Retained Earnings balance of $825,000. During Year 2, the company purchased trading investments for the first time at a cost of $346,000. In addition, trading investments with a cost of $66,000 were sold at a gain during Year 2. The company paid $65,000 in dividends during Year 2.

a. Determine the December 31, Year 2, Retained Earnings balance.

b. Provide the December 31, Year 2, balance sheet disclosure for Trading Investments

Answer and Explanation:

a.

Retain earnings, year 2

= retained earnings year 1 + earning for year 2

= $825,000 + ($245,000 - $65,000)

= $825,000 + $180,000

= $1,005,000

Therefore, The December 31, Year 2, Retained Earnings balance is $1,005,000.

b.

trading inverstments are classified under current assets. the closing balance of trading inverstments is:

trading inverstments purchased at cost in year 2 $346,000

trading inverstments sold at cost in year 2 $66,000

balance of trading inverstments at cost $280,000

The balance sheet is present like:

D-Tec Inc

balance sheet

particulars amount ($)

current asstes

trading inverstments (at cost) 280,000

valuation allowance for trading inverstment (72,500)

trading inverstments (at fair value) 207,500