Accounting for Securities During 2012, the first year of its operations, Profit

Question

Accounting for Securities During 2012, the first year of its operations, Profit Industries purchased the following securities:

During 2013, Profit sold one-half of security A for $8,000 and one-half of security D for $15,000.

1. Provide the journal entries required to adjust the portfolio of securities to its fair value at the end of 2012.

2. Provide the journal entries required to record the sale of security A and security D. If an amount box does not require an entry, leave it blank.

3. Provide the journal entries required to adjust the portfolio of securities to its fair value at the end of 2013.

Explanation / Answer

1. Adjusting to Fair Values

Loss on Trading Securities (Security A) ......5000

To Investment (Security A) 5000

Investment (Security B).. 4000

To Gain on Trading security (B) 4000

Loss on available for Sale Securities (Security C) ......2000

To Investment (Security C) 2000

Investment (Security D).. 4000

To Gain on avaiable for sale security (D) 40000

2.

Bank Account Dr. 23000

Loss on Sale of Secuurity (A) 1000

Unrealised gain on AFS Security (D) 2000

To Security A 6500

To Security D 14000

To Loss on Trading Securities (Security A) 2500

To Gain on Sale of AFS Security (D) 3000

3

Investment (Security A).. 2500

To Gain on Trading security (A) 2500

Investment (Security B).. 1000

To Gain on Trading security (B) 1000

Investment (Security C).. 2000

To AFS security (C) 2000

Loss on available for Sale Securities (Security D) ......1000

To Investment (Security D) 1000

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