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Kirkland Company had no trading debt securities prior to this year. It had the following transactions...

Kirkland Company had no trading debt securities prior to this year. It had the following transactions this year involving trading debt securities.

Aug.

2

Purchased Verizon bonds for $36,000.

Sept.

7

Purchased Apple bonds for $61,000.

12

Purchased Mastercard bonds for $46,000.

Oct.

21

Sold some of its Verizon bonds that had cost $3,300 for $3,400 cash.

23

Sold some of its Apple bonds that had cost $41,000 for $41,400 cash.

Nov.

1

Purchased Walmart bonds for $66,000.

Dec.

10

Sold all of its Mastercard bonds for $44,000 cash.


Required

1. Prepare journal entries to record these transactions.
2. Prepare a table to compare the year-end cost and fair values of its trading debt securities. Year-end fair values: Verizon, $34,500; Apple, $35,000; and Walmart, $52,000.
3. Prepare the adjusting entry to record the year-end fair value adjustment for the portfolio of trading debt securities.

Solutions

Expert Solution

1. The following journal entries will be prepared to record the given transactions:
Date Account Titles and Explanation Debit Credit
Aug. 2 Debt Investments - Trading 36000
      Cash 36000
Sept. 7 Debt Investments - Trading 61000
      Cash 61000
Sept. 12 Debt Investments - Trading 46000
      Cash 46000
Oct. 21 Cash 3400
       Debt Investments - Trading 3300
       Gain on Sale of Investments 100
Oct. 23 Cash 41400
       Debt Investments - Trading 41000
      Gain on Sale of Investments 400
Nov. 1 Debt Investments - Trading 66000
      Cash 66000
Dec. 10 Cash 44000
Loss on Sale of investments 2000
       Debt Investments - Trading 46000
2. The following table will be prepared to compare the year-end cost and fair values
Security Cost Fair value Difference
Verizon bonds 32700 34500 1800
Apple bonds 20000 35000 15000
Walmart bonds 66000 52000 -14000
Fair value adjustment 2800
3. The following adjusting entry will be prepared as the year-end to record the fair value adjustment:
Date Account Titles and Explanation Debit Credit
Dec. 31 Trading Securities fair value adjustment 2800
       Unrealized gain or loss 2800

ekkarill92 answered 3 years ago
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