A company was founded in 2016. During 2016, it purchased the following securitie
ID: 2524071 • Letter: A
Question
A company was founded in 2016. During 2016, it purchased the following securities that were classified as trading investments:
Zen Company $12,000
Jen Company $17,000
Len Company $30,000
On December 31, 2016 Zen, Jen and Len had fair market values of $14,000, $11, 000, and $36,000, respectively.
On December 31, 2017 the company still owned the same trading investments. On that date, Zen, Jen and Len had fair market values of $11,000, $9,000 and $32,000, respectively.
Required:
a. Prepare the journal entry needed on December 31, 2016 related to the trading investments.
b. Prepare the journal entry needed on December 31, 2017 related to the trading investments.
Please show all work with explanation.
Explanation / Answer
Where an investment is held for trading purpose any increase or decrease in its fair value is unrealised gain or loss.
It should be recognised in fair value adjustment a/c. When these investments are sold fair value adjustment a/c is derecognised.
JOURNAL ENTRIES
ON 31-12-2016
INVESTMENT IN ZEN COMPANY A/C 2000
INVESTMENT IN LEN COMPANY A/C 6000
TO FAIR VALUE ADJUSTMENT A/C 2000
TO INVESTMENT IN JEN COMPANY A/C 6000
ON 31-12-2017
FAIR VALUE ADJUSTMENT A/C 9000
TO INVESTMENT IN ZEN CO A/C 3000
TO INVESTMENT IN JEN CO A/C 2000
TO INVESTMENT IN LEN CO A/C 4000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.