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 $18,000.
Sept.		7		Purchased Apple bonds for $43,000.
		12		Purchased Mastercard bonds for $28,000.
Oct.		21		Sold some of its Verizon bonds that had cost $2,400 for $2,500 cash.
		23		Sold some of its Apple bonds that had cost $23,000 for $23,400 cash.
Nov.		1		Purchased Walmart bonds for $48,000.
Dec.		10		Sold all of its Mastercard bonds for $26,000 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, $16,500; Apple, $26,000; and Walmart, $43,000.
3. Prepare the adjusting entry to record the year-end fair value adjustment for the portfolio of trading debt securities.

Answer 1

Requirement 1:

Date	General Journal	Debit	Credit
Aug.02	Debt investments-Trading	$            18,000
	Cash		$        18,000
	(To record purchase of verzion bonds)
Sept.07	Debt investments-Trading	$            43,000
	Cash		$        43,000
	(To record purchase of apple bonds)
Sept.12	Debt investments-Trading	$            28,000
	Cash		$        28,000
	(To record purchase of mastercard bonds)
Oct.21	Cash	$              2,500
	Debt investments-Trading		$          2,400
	Gain on sale of investments		$              100
	(To record sale of verizon bonds)
Oct.23	Cash	$            23,400
	Debt investments-Trading		$        23,000
	Gain on sale of investments		$              400
	(To record sale of apple bonds)
Nov.01	Debt investments-Trading	$            48,000
	Cash		$        48,000
	(To record purchase of walmart bonds)
Dec.10	Cash	$            26,000
	Loss on sale of investments	$              2,000
	Debt investments-Trading		$        28,000
	(To record sale of mastercard bonds)

Requirement 2:

Comparison of Year-end cost and fair values	Year-end cost	Fair value	Difference
Verizon bonds	$            15,600	$        16,500	$             900
Apple bonds	$            20,000	$        26,000	$         6,000
Walmart bonds	$            48,000	$        43,000	$       (5,000)
Fair value adjustment			$         1,900

Calculation:

Comparison of Year-end cost and fair values	Year-end cost	Fair value	Difference
Verizon bonds	18000-2400	$   16,500	$           900
Apple bonds	43000-23000	$   26,000	$       6,000
Walmart bonds	$            48,000	$   43,000	$     (5,000)
Fair value adjustment			$       1,900

Requirement 3:

Date	General Journal	Debit	Credit
Dec.31	Trading securities fair value adjustment	$              1,900
	Unrealized gain		$          1,900
	(To record fair value adjustment)