Question

Brooks Co. purchases various investments in trading securities at a cost of $66,000 on December 27, 2013. (This is its first and only purchase of such securities.) At December 31, 2013, these securities had a fair value of $72,000.
Prepare the December 31, 2013, year-end adjusting entry for the trading securities' portfolio.

Prepare the January 3, 2014, entry when Brooks sells a portion of its trading securities (that had originally cost $33,000) for $35,000.

Answer 1

Answer:

a) Debit 6,000 to trade securities and Credit  $6,000 to Unrealized Gain account

b) Debit $35,000 to Cash account

Credit $33,000 to trade securities account

Credit $2,000 to gain on sales on securities account.

Explanation:

The first part of the question is to determine the year-ended adjusting entry

As follows:

December 31, 2013

Trading Securities = Fair value of the Securities - Trading Securities at Cost

= $72,000 - $66,000

= $6,000

The Journal entry      Description                          Debit            Credit

Dec 31, 2013             Trading Securities                 6,000

                                    Gain unrealized on securities a/c             6,000

    Being the record of unrealized holding gain on trading securities

Part 2) January 3, 2014 Sales of a Portion of Trading Securities

Date                  Description                                Debit        Credit

Jan 3rd, 2014      Cash                                    35,000

                          Trading Securities a/c                             33,000

                        Gain on sales of Securities                         2,000

Being the record of sales of a portion of trade securities.