Question

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 $20,000.
Sept.		7		Purchased Apple bonds for $45,000.
		12		Purchased Mastercard bonds for $30,000.
Oct.		21		Sold some of its Verizon bonds that had cost $2,500 for $2,600 cash.
		23		Sold some of its Apple bonds that had cost $25,000 for $25,400 cash.
Nov.		1		Purchased Walmart bonds for $50,000.
Dec.		10		Sold all of its Mastercard bonds for $28,000 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, $18,500; Apple, $27,000; and Walmart, $44,000.
3. Prepare the adjusting entry to record the year-end fair value adjustment for the portfolio of trading debt securities.

Required 1 Required 2 Required 3 Prepare a table to compare the year-end cost and fair values of its trading debt securities. Ye $18,500; Apple, $27,000; and Walmart, $44,000. Portfolio of Trading Securities Cost Fair Value Unrealized Amount Verizon bonds Apple bonds Walmart bonds Total $ 0 $ 0 Required 1 Required 3 >

Answer 1

Journal entries

Date	Account title	Debit	Credit
Aug 2	Investment in Verizon Bonds a/c ---Dr To Cash a/c	$20000	$20000
Sept 7	Investment in Apple Bonds a/c ---Dr To Cash a/c	$45000	$45000
Sep 12	Investment in MasterCard Bonds a/c --Dr To Cash a/c	$30000	$30000
Oct 21	Cash a/c ---Dr To Investment in Verizon Bonds To Gain onsale of Bonds(P/L) (2600-2500)	$2600	$2500 $100
Oct 23	Cash a/c --Dr To Investment in Apple Bonds To Gain on sale of Bonds(P/L) (25400-25000)	$25400	$25000 $400
Nov 1	Investment in Walmart Bonds--Dr To Cash	$50000	$50000
Dec 10	Cash a/c ---Dr Loss on sale of Bond(P/L)---Dr (30000-28000) To Investment in MasterCard Bonds	$28000	$2000 $30000

The Gain or Loss on sale of Investment Transfer to Profit/Loss(P/L) a/c

COMPARATIVE OF YEAR END COST AND FAIR VALUE OF TRADING DEBT SECURITIES

Portfolio of trading Securities	COST	Fair Value	Unrealised Amount
Verizon bonds	$17500 (20000-2500)	$18500	$1000
Apple bonds	$20000 (45000-25000)	$27000	$7000
Walmart bonds	$50000	$44000	($6000) loss
Total	$87500	$89500	$2000

Adjusting entries to record the year end fair value Adjustment for the portfolio of trading debt Securities

For Verizon bonds

Investment in Verizon Bonds a/c ---- Dr. $1000

To Profit/loss a/c. $1000

For Apples Bonds

Investment in Apple Bonds a/c ----Dr $7000

To Profit/loss a/c. $7000

For Walmart Bonds

Profit/loss a/c ----Dr. $6000

To Investment in Walmart Bonds. $6000

This investment which are held for trading such investment will be revaluation/reclassified at fair value at reporting date such fair value Gain or Loss is transferred to profit/loss a/c