Question

Mumford Corporation invested $30,000 in marketable securities on December 4. On December 9, it sold some of these investments for $10,000, and on December 18, it sold more of these investments for $5,000. The securities sold on December 9 had cost the company $7,000, whereas the securities sold on December 18 had cost the company $6,000.
a) Record the purchase of marketable securities on December 4.
b) Record the sale of marketable securities on December 9.
c) Record the sale of marketable securities on December 18.
d) Record the necessary fair value adjustment on December 31, assuming that the market value of the company's remaining unsold securities was $20,000.

Answer 1

Answer:

Mumford Corporation

Journal Entries:

a) December 4:

Debit Investment in Marketable Securities $30,000

Credit Cash $30,000

To record the purchase of marketable securities.

b) December 9:

Debit Cash $10,000

Credit Investment in Marketable Securities $7,000

Credit Gain from sale of marketable securities $3,000

To record the sale of investment and the gain arising from the sale.

c) December 18:

Debit Cash $5,000

Debit Loss from sale of securities $1,000

Credit Investment in marketable securities $6,000

To record the sale of marketable securities and the arising loss.

d) December 31:

Debit Investment in Marketable Securities $3,000

Credit Unrealized Gain $3,000

To record the unrealized gain on marketable securities.

Explanation:

a) Investment in marketable securities = $30,000 on December 4

Cost of units sold on December 9 = $7,000; selling price =$10,000

Cost of units sold on December 18 = $6,000; selling price = $5,000

b) Mumford will record an unrealized gain to the value of $3,000 because the value of the marketable securities has increased but the asset is yet to be sold for cash.  When the asset is eventually sold, it becomes a realized gain.