Question

Fair Value Journal Entries, Trading Investments Jets Bancorp Inc. purchased a portfolio of trading securities during 20Y3. The cost and fair value of this portfolio on December 31, 20Y3, was as follows: Name Number of Shares Total Cost Total Fair Value Dolphins Inc. 1,600 $28,800 $32,000 Marino Company 1,400 35,000 30,800 Namath Company 600 21,000 19,800 Total $84,800 $82,600
On May 10, 2017, Jets Bancorp Inc. purchased 1,000 shares of Giants Inc. at $24 per share plus a $150 brokerage commission.
a. Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):
The adjustment of the trading security portfolio to fair value on December 31, 20Y3.
The May 10, 20Y4, purchase of Giants Inc. stock.

Answer 1

Answer:

Trading Investments Jets Bancorp Inc.

Journal Entries - Fair Value:

Dec. 31, 20Y3:

                                                             Debit           Credit

Investment in Dolphins Inc.               $3,200

Gain (Loss) on Investments                                     $3,200

To record the investment's fair value and gain.

Gain (Loss) on Investments            $4,200

Investment in Marino Company                              $4,200

To record the investment's fair value and loss.

Gain (Loss) on Investments            $1,200

Investment in Namath Company                             $1,200

To record the investment's fair value and loss.

May 10, 20Y4:

Investment in Jets Bancorp Inc     $24,000

Brokerage Commission                       $150

Cash Account                                                          $24,150

To record purchase of 1,000 shares at $24 per share plus commission.

Explanation:

a) Trading securities are a category of securities that include both debt securities and equity securities.   An entity holds them with the intention  to sell in the short-term for a profit that arises from increases in the prices of the securities.

b) Fair value is an asset's selling price, which is freely agreed upon between a willing and knowledgeable buyer and seller.  But, for Debt Securities, it represents the market value of the investments at any point in time when financial statements are being prepared.  Investments that are held for trading purposes are required to be accounted for, using the fair value method.  This implies that the gains and losses, both realized and unrealized must be accounted for whenever financial statements are bing prepared or when the investment is disposed of.