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.
