Question

Brooks Co. purchases debt investments as trading securities at a cost of $77,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $85,000.

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 $38,500) for $40,500 cash.

Answer 1

Journal Entries
Date	Particular	Debit	Credit
Dec-27	Debt Investment	$       77,000
	Cash		$       77,000
	(to the record of debt investment)
Dec-31	Fair Value Adjustment	$         8,000
	Unrealized gain - Income		$         8,000
	(to record fair value adjustment)
Jan-03	Cash	$       40,500
	Gain On sale of debt investment		$         2,000
	Debt Investment		$       38,500
	(to record sale of a portion of debt investment)