Question

Investment in Trading and AFS Securities

In 2019, a company purchases debt securities at a par value of $500,000. Their year-end value is $520,000. In 2020, these securities are sold for $525,000 and new securities are purchased for $700,000. At the end of 2020, the securities have not yet been sold, and have a value of $600,000.

Required
Prepare the journal entries to record the above information for 2019 and 2020, assuming that:

a. The securities are categorized as trading securities.

General Journal
Date	Description	Debit	Credit
2019	____________________________________________________
	____________________________________________________
	To record purchase of trading securities.
	____________________________________________________
	____________________________________________________
	To record change in value for trading securities at year-end.
2020	Cash
	______________________________
	Investment in trading securities
	To record sale of trading securities.
	___________________________________________
	___________________________________________
	To record purchase of new trading securities.
	_____________________________________________
	_____________________________________________
	To record change in value for trading securities at year-end. b. The securities are categorized as AFS securities, and (1) the company intends to sell the securities held at the end of 2020 before the loss is recovered, or (2) the company intends to hold the securities, and their decline in value is attributed to expected credit losses, or (3) the company intends to hold the securities, and their decline in value is attributed to a rise in market interest rates. General Journal Date Description Debit Credit b (1) 2019 _________________________________________________ _________________________________________________ To record purchase of AFS securities. ________________________________________________ ________________________________________________ To record change in value for AFS securities at year-end. 2020 Cash ______________________________ Investment in AFS securities _______________________________ To record slae of AFS securities _________________________________________________ _________________________________________________ To record purchase of new AFS securities. _________________________________________ Answer Answer _________________________________________ Answer Answer To record change in value for AFS securities at year-end. (2) 2020 Cash Answer Answer ________________________________________________ Answer Answer Investment in AFS securities Answer Answer ________________________________________________ Answer Answer To record sale of AFS securities. ________________________________________________ Answer Answer ________________________________________________ Answer Answer To record purchase of new AFS securities. ________________________________________________ Answer Answer ________________________________________________ Answer Answer To record impairment loss for AFS securities at year-end. (3) 2020 Cash Answer Answer ________________________________ Answer Answer Investment in AFS securities Answer Answer ________________________________ Answer Answer To record sale of AFS securities. __________________________________ Answer Answer __________________________________ Answer Answer To record purchase of AFS securities. _______________________________ Answer Answer _______________________________ Answer Answer To record change in value for AFS securities at year-end.

Answer 1

a. The securities are categorized as trading securities.
General Journal
Date	Description	Debit	Credit
2019	Investment in Trading Securities	$500,000.00
	Cash		$500,000.00
	To record purchase of trading securities.
	Investment in Trading Securities	$20,000.00
	Unrealized gain- Trading Securities ($520,000 - $500,000)		$20,000.00
	To record change in value for trading securities at year-end.
2020	Cash	$525,000.00
	Gain on sale of Trading Investment		$5,000.00
	Investment in trading securities		$520,000.00
	To record sale of trading securities.
	Investment in Trading Securities	$700,000.00
	Cash		$700,000.00
	To record purchase of new trading securities.
	Unrealized Loss - Trading Securities ($600,000 - $700,000)	$100,000.00
	Investment in Trading Securities		$100,000.00
	To record change in value for trading securities at year-end.