Valuing Trading Securities at Fair ValueOn January 1, Valuation Allowance for Trading Investments had a zero balance. On December 31, the cost of the trading securities portfolio was $44,500, and the fair value was $46,400Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investmentsUnrealized Loss on Trading Investments xDec. 311,900 VTrading Investments x1,900 V

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Asked Apr 25, 2019
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Hi, I'm not sure which values to use because I assumed it would be the difference between the two values given for the journal entry but seems like that's not the case. How do I solve this?

Valuing Trading Securities at Fair Value
On January 1, Valuation Allowance for Trading Investments had a zero balance. On December 31, the cost of the trading securities portfolio was $44,500, and the fair value was $46,400
Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments
Unrealized Loss on Trading Investments x
Dec. 31
1,900 V
Trading Investments x
1,900 V
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Valuing Trading Securities at Fair Value On January 1, Valuation Allowance for Trading Investments had a zero balance. On December 31, the cost of the trading securities portfolio was $44,500, and the fair value was $46,400 Prepare the December 31 adjusting journal entry to record the unrealized gain or loss on trading investments Unrealized Loss on Trading Investments x Dec. 31 1,900 V Trading Investments x 1,900 V

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Expert Answer

Step 1

Trading investments:

 

Trading investments refer to the short term investments bought by the company in order to realize short-term profits. Trading investments are highly risky investments and are shown at fair value as a current asset in the balance sheet of the business.

 

Unrealized gain or loss:

 

Unrealized gain or loss refers to the increase or decrease in the value of the investment, which is not yet sold by the business. If the fair value of the investment is more than the cost, then there is unrealized gain and if the fair value of the investment is less than the cost, then there is an unrealized loss on trading investment.

Step 2

On December 31, the cost of trading securities is $44,500 and the fair value is $46,400. As the fair value of the investment is more than the cost of the investment, thus there is an unrealized gain on trading investment.

 

Journal entry for recording the adjusting unrealized gain on trading investment on 31st December:

Unrealized gain on the trading investment is a gain to the organization, and there is an increase in gain so being a nominal account it is credited and trading investment...

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