Question

Brooks Co. purchases debt investments as trading securities at a cost of $66,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $72,000.

Prepare the December 31 year-end fair value adjusting entry for the trading securities' portfolio and the January 3 entry when Brooks sells a portion of its trading securities (costing $3,000) for $4,000 cash.

Answer 1

Dr. Cr.

December 31

*Securities FV adjustment $6,000

Unrealized Gain $6,000

January 3

Cash $4,000

Securities FV adjustment $1,000

Trading Securities $3,000

* Securities FV adjustment is a sub asset account of trading securities.

Step-by-step explanation:

Trading security are reported on its fair market value at each period end. The gain or loss should be recorded.

Dec 27, Purchase price = $66,000

Dec 31, Fair value = $72,000

Unrealized gain = $72,000 - $66,000 = $6,000