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Short Selling – Journal Questions

Journal Questions

For the following scenario, prepare journal entries, general ledgers, trial balance, income statement, and balance sheet for Abdul Razack Inc. for the period January 1 through February 28.

Box Position—Trade Currency BRL
Abdul Razack Inc. traded in Coca-Cola shares in a Brazilian stock exchange through Pompoodle brokers and the details are as follows.

Trade Details
Date                  Product           Quantity           Rate (BRL)           B/S                 Brokerage
11-Jan-X1     Coco Cola          17,000               34.00            Bought Long      BRL 12,500
25-Jan-X1     Coco Cola          14,000               39.00            Bought Long      BRL   7,800
5-Feb-X1      Coco Cola          23,000               45.00            Short sales         BRL 25,600

Other Details
The stock loan fee paid by Abdul Razack Inc. on short sales on February 28 is BRL 4,800.
An investor has introduced an amount of BRL 10 million as share capital on January 1 into the Abdul Razack Inc. fund.
Settlement: T + 2
Abdul Razack Inc. makes a deposit of BRL 1.05 million with the broker on February 5 as collateral.
Interest accrued on cash collateral amounts to BRL 7,800 due from the broker as of February 28.

FX Rates
Date              FX Rate
1-Jan-X         1.6540
11-Jan-X1     1.6505
13-Jan-X1     1.6525
25-Jan-X1     1.6484
27-Jan-X1     1.6444
31-Jan-X1     1.6311
5-Feb-X1      1.6255
7-Feb-X1      1.6201
28-Feb-X1    1.6150

Market Rate
January 31: 42.00
February 28: 39.00

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