In: Accounting
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.
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 |