Available For Sale and Trading Securities The investment operations group for FM

Question

Available For Sale and Trading Securities

The investment operations group for FM Global buys and sells equity securities regularly. On December 5, 2012, the company purchased class 1 shares of Disney common stock for $5,500,000 cash and later sold the shares for $5,600,000 on January 10, 2013.   On December 31, 2012, the company received a cash dividend from Disney of $10,000. Also on December 31, 2012, it became known that the fair value of those Disney shares appreciated to a value of $5,550,000.

1. Provide the journal entries required if these investments are categorized as trading? Don’t forget to include any necessary December 31 adjustments.

2. What would be the difference if these investments are categorized as available for sale?

Explanation / Answer

Answer 1

Answer 2

Difference i accounting treatment if these investments are categorized as available for sale :

Journal Entries - Available for sale Investment

Date Accounts Titles & Explanation Debit ($) Ceredit ($) December 5, 2012 Invetment in Trading Securities 5,500,000 Cash 5,500,000 [To record purchase of trading securities] December 31, 2012 Cash 10,000. Dividend Income 10,000 [ To record receipt of dividend income] December 31, 2012 Invetment in Trading Securities 50,000 Unrealized Gain - Trading Securities 50,000 [To record entry for fair value adjustments] January 10, 2013 Cash 5,600,000 Invetment in Trading Securities [$5,500,000 + $50,000]   5,550,000 Gain on sale of trading securities 50,000 [To sale of  trading securities]

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.