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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On February 1, 2019, Razorback Corporation decides to transfer its available-for-sale securities to the trading category. These securities had been purchased for $9,400 early in 2018 and had a fair value of $11,700 on December 31, 2018. On February 1, 2019, the securities have a fair value of $12,500. Prepare the journal entries to record the transfer.

To determine

Prepare the journal entries to record the transfer of available-for-sale securities to trading securities.

Explanation

Available-for-sale securities: These are the securities which are not intended to be sold in the near future and there is no intension to hold the securities till their maturity.

Early in 2018, Corporation R purchased securities for $9,400; its market value becomes $11,700 at December 31, 2018. In order to record the unrealized gain of $2,300 ($11,700$9,400) on holding the available-for-sale securities, Corporation R would have been credited the unrealized holding gain and debited the allowance for change in the fair value of investment on December 31, 2018.

Prepare journal entries in the books of Corporation R to record the transfer of available-for-sale securities to trading securities.

DateAccount Title and Explanation Debit Credit 
February 1, 2019Investment in trading securities$12,500 
         Investment in Available-for-Sale Securities $9,400
         Gain on transfer of securities $3,100
 (To record the transfer of available-for-sale securities as trading securities)  

Table (1)

Description:

  • Investment in trading securities is an asset, and it is increased

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