Question

Sun Corporation buys and sells debt securities which it classifies as trading securities.The company's fiscal year ends on December 31.On Decenber 27,2021,Sun purchased Northern
Communications bonds at par for$500,000.At December 31,the bonds had a fair value of 574,000.On January 3,2022,the bonds were sold for$607,000.The amount included in 2022 net
income as a result of this investment would be:

Answer 1

In case of trading securities the balance at the year end of the securities are adjusted as per the fair value and any unrealised gain or loss is shown in the income statement However when the actual sale is made the realised gain is shown in the income statement as adjusted with the fair value

Here on December 27, 2021 the securities have been purchased for $ 500,000 and value as on 31st December is $ 574,000.

Thus the fair value adjustment for the unrealised gain of $ 74,000 is to be made at the year end. Which will treat the income of $ 74,000 for 2021 and the fair value of the bond will now be $ 574,000

Further on January 3, 2022 the bonds have been actually sold for $ 607,000.

So the realised income from the Investment for 2022 = Sell value - fair value on 1st January = $ 607000 - $ 574000

For 2022 ncome from the investment =$ 33.000

Here in cases of available for sale securities the treatment differs a bit that at the time of actual sales the entire income is shown at income statement till it is sold it kept at a temporary Accounts under equity.