Question

Use the following information on a company's investments in debt securities. The company's accounting year ends December 31.

Investment	Date of Acquisition	Cost	Fair Value 12/31/19	Date Sold	Selling Price
Colt Company bonds	9/20/19	$38,000	$37,000	2/10/20	$42,000
Dana Company bonds	10/2/19	14,000	14,200	1/17/20	13,000

1. If the above debt investments are categorized as trading securities, what amount is reported for gain or loss on securities in 2019 income?

2. If the above debt investments are categorized as trading securities, what amount is reported for gain or loss on securities in 2020 income?

3. If the above investments are categorized as available-for-sale securities, what amount is reported for gain or loss on securities in 2019 income?

4. If the above investments are categorized as available-for-sale securities, what amount is reported as gain or loss on securities in 2020 income?

Answer 1

If debt investments are categorized as trading securities gain or loss on securities in 2019 Gain or loss on Particulars Cost Fair Value 12/31/19 securities in 2019 Colt Company bonds 38,000.00 $ 37,000.00 $ (1,000.00) Dana Company bonds $ 14,000.00 $ 14,200.00 $ 200.00 Net Loss $ (800.00) $ If debt investments are categorized as trading securities gain or loss on securities in 2020 Value in books on sale Gain or loss on Particulars Sale price date securities in 2020 Colt Company bonds $ 37,000.00 $ 42,000.00 $ 5,000.00 Dana Company bonds $ 14,200.00 $ 13,000.00 $ (1,200.00) Net Income $ 3,800.00 If debt investments are categorized as available-for-sale securities gain or loss on securities in 2019 Nil amount is recorded as gain/loss in income. If debt investments are categorized as available-for-sale securities gain or loss on securities in 2020 Particulars Gain or loss on Cost Sale Price securities in 2020 Colt Company bonds $ 38,000.00 $ 42,000.00 $ 4,000.00 Dana Company bonds $ 14,000.00 $ 13,000.00 $ (1,000.00) Net Income $ 3,000.00