Berkshire Co. purchases debt investments in trading securities at a cost of $130 on July 1. (This is its first and only purchase of trading securities.) On December 30, Berkshire received $1 of interest from its trading securities. At year-end December 31, the trading securities had a fair value of $140. a. Prepare the July 1 purchase entry of trading securities. b. Prepare the December 30 entry for receipt of cash interest. c. Prepare the December 31 year-end adjusting entry for the trading securities’ portfolio. d. Explain how each account in entry c is reported in financial statements. e. Prepare the January 3 entry when a portion of its trading securities (that had cost $33) is sold for $36.

Question

Berkshire Co. purchases debt investments in trading securities at a cost of $130 on July 1. (This is its first
and only purchase of trading securities.) On December 30, Berkshire received $1 of interest from its trading
securities. At year-end December 31, the trading securities had a fair value of $140.
a. Prepare the July 1 purchase entry of trading securities.
b. Prepare the December 30 entry for receipt of cash interest.
c. Prepare the December 31 year-end adjusting entry for the trading securities’ portfolio.
d. Explain how each account in entry c is reported in financial statements.
e. Prepare the January 3 entry when a portion of its trading securities (that had cost $33) is sold for $36.

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