Question

Brooks Co. purchases various investments in trading securities at a cost of $66,000 on December 27, 2015. (This is its firstand only purchase of such securities.) At December 31, 2015, these securities had a fair value of 871000.1. Prepare the December 31, 2015, year-end adjusting entry for the trading securities’ portfolio.2. Explain how each account in the entry of part 1 is reported in financial statements.3. Prepare the January 3, 2016, entry when Brooks sells a portion of its trading securities (that had originally cost $33,000)for $35,000.

Answer 1

Answer:

trading securities   21,100 debit

unrealized gain                   21,100 credit

--year-end adjusting entry--    

2- This unrealized gain will be part of other comprehensible income

he trading security will be part of current assets.

3.-

cash       35,000 debit

         trading securities      35,000 credit

unrealized gain 2,000 debit

         gain on investment     2,000 credit

Explanation:

We have to recognize a unrealized gain for the difference in value of the trading securities.

the gain is unrealized because, we didn't sale the securities yet. We will convert into earned once we sale them.

Dec 31th   87, 100

Dec 27th (66,000)

                 21, 100

We are salling for 35,00 what it cost 33,000 thus; we make a gain for 2,000

We already have the trading security ad fair value from the december 31th adjustment so we simply decrease the securities account and increase our cash by the amount recieved.

And we move from unrealized into realized gain as now we have sale the securities and the gain is realized.