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Available for sale and trading securities

In Year 1, the firm purchased a portfolio of marketable securities for $1,000, which it holds as current assets. At the end of Year 1, the portfolio had a market value of $800. During Year 2, the firm sold some of the securities for $120 which had originally cost $100, but which had a market value of $90 at the end of Year 1. At the end of Year 2, the remaining securities had a market value of $1,150.

Required:

a. Assume the firm treats its holdings as available for sale.
1. Record the entry made at the end of Year 1.
2. Record the entries made during Year 2 and at the end of Year 2.

b. Assume the firm treats its holdings as trading securities.
1. Record the entry made at the end of Year 1.
2. Record the entries made during Year 2 and at the end of Year 2.

Solution Preview

a. Under available for sale the difference between the cost and market value is recorded as unlrealized gain/loss on equity and is a part of other comprehensive income.

1. The cost of $1,000 and the market value is $800. There is an unrealized loss of $200 and the value of securities is to be adjusted to $800. The entry is
Unrealized loss/gain on securities - Equity Dr 200
Market Value Adjustment - AFS Cr 200

2. ...

Solution Summary

The solution explains the journal entries relating to securities classified as available for sale / trading

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