Question

Freedom Corporation buys and sells debt securities which it classifies as trading securities. The company's fiscal year ends on December 31. On December 27, 2021, Freedom purchased Western Communications bonds at par for $700,000. At December 31, the bonds had a fair value of 725,000. On January 3, 2022, the bonds were sold for $737,000. The amount included in 2021 net income as a result of this investment would be: (Do not add dollar sign; do not add comma by yourself to your amount; round the answer to the whole number; use minus sign if the amount is negative)

Answer 1

25000

Explanation:

Trading Securities are those securities which are held for short-term and can be sold for earning profit. Hence, the main motive of investment in trading securities is to earn short-term profit.

Since, the Purchase value of trading securities is $7,00,000 and Fair Value of Investment is $7,25,000 as on Dec 31, 2021, hence, the difference of $25,000 should be shown as unrealized gain and should be included under Other Comprehensive Income (OCI) for the year.