1.
Prepare
1.

Explanation of Solution
Prepare journal entry for interest received on December 31, 2019.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2019 | ||||||
December | 31 | Cash | 1,700 | |||
Interest Revenue | 1,700 | |||||
(To record receipt of interest) |
Working Note:
Compute amount of interest revenue.
2.
Journalize the entries related to investment in trading securities.
2.

Explanation of Solution
Trading securities (TS): The category of passive investments which are bought with a purpose to sell in the near future are referred to as trading securities. The percentage of passive investments in debt or equity will be less than 20%.
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Prepare journal entry for purchase of investment in TS.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2019 | ||||||
October | 1 | Investments in TS | 170,000 | |||
Cash | 170,000 | |||||
(To record purchase of investment in TS) |
Prepare journal entry for adjusting the cost of TS securities to the fair market value, as on December 31, 2019.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2019 | ||||||
December | 31 | Investments in TS | 3,000 | |||
Net Unrealized Gains (Losses) | 3,000 | |||||
(To record the adjustment of cost of investment in TS to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2019.
Prepare journal entry for adjusting the TS to the fair market value, as on December 31, 2020.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2020 | ||||||
December | 31 | Net Unrealized Gains (Losses) | 5,000 | |||
Investments in TS | 5,000 | |||||
(To record the adjustment of investment in TS to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2020.
Prepare journal entry for adjusting the TS to the fair market value, as on December 31, 2021.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2021 | ||||||
December | 31 | Net Unrealized Gains (Losses) | 28,000 | |||
Investments in TS | 28,000 | |||||
(To record the adjustment of investment in TS to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2021.
Prepare journal entry to record the sale of investment in TS securities.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2022 | ||||||
March | 17 | Cash | 164,000 | |||
Net Unrealized Gains (Losses) | 1,000 | |||||
Investments in TS Securities | 165,000 | |||||
(To record the disposal of trading investment) |
Working note:
Determine the unrealized gain or loss on investment on March 17, 2022.
2.
Journalize the entries related to investment in available-for-sale securities.
2.

Explanation of Solution
Available-for-sale (AFS) securities: The category of passive investments which are held as idle funds to serve the future operating and strategic purposes, are referred to as available-for-sale securities. The percentage of passive investments in debt or equity will be less than 20%.
Prepare journal entry for purchase of investment in AFS securities.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2019 | ||||||
December | 31 | Investments in AFS Securities | 170,000 | |||
Cash | 170,000 | |||||
(To record purchase of investment in AFS securities) |
Prepare journal entry for adjusting the cost of AFS securities to the fair market value, as on December 31, 2019.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2019 | ||||||
December | 31 | Investments in AFS Securities | 3,000 | |||
Net Unrealized Gains (Losses) | 3,000 | |||||
(To record the adjustment of cost of investment in AFS securities to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2019.
Prepare journal entry for adjusting the AFS securities to the fair market value, as on December 31, 2020.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2020 | ||||||
December | 31 | Net Unrealized Gains (Losses) | 5,000 | |||
Investments in AFS Securities | 5,000 | |||||
(To record the adjustment of investment in AFS securities to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2020.
Prepare journal entry for adjusting the AFS securities to the fair market value, as on December 31, 2021.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2021 | ||||||
December | 31 | Net Unrealized Gains (Losses) | 3,000 | |||
Investments in AFS Securities | 3,000 | |||||
(To record the adjustment of investment in AFS securities to the fair value) |
Working note:
Determine the unrealized gain or loss on investment on December 31, 2021.
Prepare journal entry to record the sale of investment in available-for-sale securities.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | ||
2022 | ||||||
March | 17 | Cash | 164,000 | |||
Loss on sale of investments | 6,000 | |||||
Net Unrealized Losses | 6,000 | |||||
Investments in AFS Securities | 164,000 | |||||
(To record the disposal of available-for-sale investment) |
Working Notes:
Determine the unrealized gain or loss on investment on March 17, 2022.
Compute net balance of unrealized gains (losses).
Details | Amount ($) |
Net unrealized gains (losses) on December 31, 2019 | $3,000 |
Net unrealized gains (losses) on December 31, 2020 | (5,000) |
Net unrealized gains (losses) on December 31, 2021 | (3,000) |
Net unrealized gains (losses) on December 31, 2022 | (1,000) |
Net balance of unrealized gains (losses) | $(6,000) |
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