Question

Exercise 15-2 Accounting for debt investments classified as trading LO P1 Brooks Co. purchases debt investments as trading securities at a cost of $54,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $69,000. 1. Prepare the December 27 entry for the purchase of debt investments. 2. & 3. 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 $27,000) for $30,750 cash.

Answer 1

Solution:-

Date	Account title and explanation	Debit($)	Credit($)
Dec-27	Investments- Trading	$54,000
	Cash		$54,000
	(to record purchase of investments)
Dec-31	Fair value adjustment(Note-1)	$15,000
	Unrealized gain income		$15,000
	(to record fair value of investment)
Jan-03	Cash	$30,750
	Gain on sale of investments(Note-2)		$3,750
	Short term investments-trading		$27,000
	( to record sale of portion of investment)

Workings:-

Note:-1) Fair value adjustment - Trading=$69,000-$54000=$15,000.

  2) Gain on sale of short-term investments=$30,750-$27,000=$3,750.