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Requirement-1:
To Prepare:
The
Requirement-1:
Answer to Problem 1APSA
The journal entries for the transactions and events are as follows:
| Kirkland Company | |||
| Journal Entries | |||
| Trading debt securities | |||
| Date | Account Titles | Debit | Credit |
| Aug. 2 | Investment in Trading Debt Securities- Verizon | $ 10,000 | |
| Cash | $ 10,000 | ||
| Sep. 7 | Investment in Trading Debt Securities- Apple | $ 35,000 | |
| Cash | $ 35,000 | ||
| Sep. 12 | Investment in Trading Debt Securities- Mastercard | $ 20,000 | |
| Cash | $ 20,000 | ||
| Oct. 21 | Cash | $ 2,100 | |
| Gain on sale of Trading Debt Securities | $100 | ||
| Investment in Trading Debt Securities- Verizon | $ 2,000 | ||
| Oct. 23 | Cash | $ 15,400 | |
| Gain on sale of Trading Debt Securities | $400 | ||
| Investment in Trading Debt Securities- Apple | $ 15,000 | ||
| Nov. 1 | Investment in Trading Debt Securities- Walmart | $ 40,000 | |
| Cash | $ 40,000 | ||
| Dec. 10 | Cash | $ 18,000 | |
| Loss on sale of Trading Debt Securities | $ 2,000 | ||
| Investment in Trading Debt Securities- Mastercard | $ 20,000 | ||
Explanation of Solution
The journal entries for the transactions and events are explained as follows;
| Kirkland Company | |||
| Journal Entries | |||
| Trading debt securities | |||
| Date | Account Titles | Debit | Credit |
| Aug. 2 | Investment in Trading Debt Securities- Verizon | $ 10,000 | |
| Cash | $ 10,000 | ||
| (Being Investment made in Debt Securities) | |||
| Sep. 7 | Investment in Trading Debt Securities- Apple | $ 35,000 | |
| Cash | $ 35,000 | ||
| (Being Investment made in Debt Securities) | |||
| Sep. 12 | Investment in Trading Debt Securities- Mastercard | $ 20,000 | |
| Cash | $ 20,000 | ||
| (Being Investment made in Debt Securities) | |||
| Oct. 21 | Cash | $ 2,100 | |
| Gain on sale of Trading Debt Securities (2100-2000) | $100 | ||
| Investment in Trading Debt Securities- Verizon | $ 2,000 | ||
| (Being trading investment sold for cash) | |||
| Oct. 23 | Cash | $ 15,400 | |
| Gain on sale of Trading Debt Securities (15400-15000) | $400 | ||
| Investment in Trading Debt Securities- Apple | $ 15,000 | ||
| (Being trading investment sold for cash) | |||
| Nov. 1 | Investment in Trading Debt Securities- Walmart | $ 40,000 | |
| Cash | $ 40,000 | ||
| (Being Investment made in Debt Securities) | |||
| Dec. 10 | Cash | $ 18,000 | |
| Loss on sale of Trading Debt Securities (20000-18000) | $ 2,000 | ||
| Investment in Trading Debt Securities- Mastercard | $ 20,000 | ||
| (Being trading investment sold for cash) | |||
Concept Introduction:
Investment in Debt securities:
Debt securities are financing instrument which represents the loan taken from the lender and usually these securities pay defined interest rate on the amount borrowed. The several types of debt instruments are bonds, certificate of deposits,
- Held to maturity: Held to maturity is a type of debt investment that the investor intends to hold until maturity. These securities are recorded at amortized cost.
- Trading: Trading securities are purchased by the investor for the purpose to sell within a short-term period to each profit. These securities are recorded at their fair value and any gain or loss is recognized in the income statement for that period.
- Available for sale: All the other securities are considered as available for sale and these securities are recorded at their fair value and any gain or loss is recognized unrealized gain or loss until the securities are actually sold.
Requirement-2:
To Prepare:
The Table showing yearend cost and fair values of the trading debt securities
The Table showing yearend cost and fair values of the trading debt securities is as follows:
| Trading Securities | Cost | Fair Value |
| Verizon Bonds | $ 8,000 | $8,500 |
| Apple Bonds | $ 20,000 | $ 22,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 |
The Table showing yearend cost and fair values of the trading debt securities is prepared as follows:
| Trading Securities | Cost | Fair Value |
| Verizon Bonds | $ 8,000 | $8,500 |
| Apple Bonds | $ 20,000 | $ 22,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 |
Concept Introduction:
Investment in Debt securities:
Debt securities are financing instrument which represents the loan taken from the lender and usually these securities pay defined interest rate on the amount borrowed. The several types of debt instruments are bonds, certificate of deposits, preferred stock, corporate bonds etc. The investment in debt securities is classified under following categories:
- Held to maturity: Held to maturity is a type of debt investment that the investor intends to hold until maturity. These securities are recorded at amortized cost.
- Trading: Trading securities are purchased by the investor for the purpose to sell within a short-term period to each profit. These securities are recorded at their fair value and any gain or loss is recognized in the income statement for that period.
- Available for sale: All the other securities are considered as available for sale and these securities are recorded at their fair value and any gain or loss is recognized unrealized gain or loss until the securities are actually sold.
Requirement-3:
To Prepare:
The yearend
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is as follows:
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is explained as follows:
| Calculation of Fair Value Adjustment : | |||
| Trading Securities | Cost | Fair Value | Fair Value Adjustment |
| A | B | B-A | |
| Verizon Bonds | $ 8,000 | $8,500 | $ 500 |
| Apple Bonds | $ 20,000 | $ 22,000 | $ 2,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 | $(1,000) |
| Total Fair Value Adjustment | $ 1,500 | ||
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
| (Being fair value adjustment made for trading debt investment) | |||
Requirement-2:
To Prepare:
The Table showing yearend cost and fair values of the trading debt securities
Requirement-2:
Answer to Problem 1APSA
The Table showing yearend cost and fair values of the trading debt securities is as follows:
Explanation of Solution
The Table showing yearend cost and fair values of the trading debt securities is prepared as follows:
| Trading Securities | Cost | Fair Value |
| Verizon Bonds | $ 8,000 | $8,500 |
| Apple Bonds | $ 20,000 | $ 22,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 |
Concept Introduction:
Investment in Debt securities:
Debt securities are financing instrument which represents the loan taken from the lender and usually these securities pay defined interest rate on the amount borrowed. The several types of debt instruments are bonds, certificate of deposits, preferred stock, corporate bonds etc. The investment in debt securities is classified under following categories:
- Held to maturity: Held to maturity is a type of debt investment that the investor intends to hold until maturity. These securities are recorded at amortized cost.
- Trading: Trading securities are purchased by the investor for the purpose to sell within a short-term period to each profit. These securities are recorded at their fair value and any gain or loss is recognized in the income statement for that period.
- Available for sale: All the other securities are considered as available for sale and these securities are recorded at their fair value and any gain or loss is recognized unrealized gain or loss until the securities are actually sold.
Requirement-3:
To Prepare:
The yearend adjusting entry to record the fair value adjustment for the trading debt securities
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is as follows:
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is explained as follows:
| Calculation of Fair Value Adjustment : | |||
| Trading Securities | Cost | Fair Value | Fair Value Adjustment |
| A | B | B-A | |
| Verizon Bonds | $ 8,000 | $8,500 | $ 500 |
| Apple Bonds | $ 20,000 | $ 22,000 | $ 2,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 | $(1,000) |
| Total Fair Value Adjustment | $ 1,500 | ||
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
| (Being fair value adjustment made for trading debt investment) | |||
Requirement-3:
To Prepare:
The yearend adjusting entry to record the fair value adjustment for the trading debt securities
Requirement-3:
Answer to Problem 1APSA
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is as follows:
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
Explanation of Solution
The yearend adjusting entry to record the fair value adjustment for the trading debt securities is explained as follows:
| Calculation of Fair Value Adjustment : | |||
| Trading Securities | Cost | Fair Value | Fair Value Adjustment |
| A | B | B-A | |
| Verizon Bonds | $ 8,000 | $8,500 | $ 500 |
| Apple Bonds | $ 20,000 | $ 22,000 | $ 2,000 |
| Walmart Bonds | $ 40,000 | $ 39,000 | $(1,000) |
| Total Fair Value Adjustment | $ 1,500 | ||
| Kirkland Company | |||
| Journal Entries | |||
| Date | Account Titles | Debit | Credit |
| Dec. 31 | Investment in Trading Debt Securities- Verizon | $ 500 | |
| Investment in Trading Debt Securities- Apple | $ 2,000 | ||
| Unrealized Gain on Trading Debt Securities | $ 1,500 | ||
| Investment in Trading Debt Securities- Walmart | $ 1,000 | ||
| (Being fair value adjustment made for trading debt investment) | |||
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