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Available for sale & trading securities

E17-6 (Entries for Available-for-Sale and Trading Securities) The following information is available for Barkley Company at December 31, 2007, regarding its investments.

Securities Cost Fair Value
3,000 shares of Myers Corporation Common Stock $40,000 $48,000
1,000 shares of Cole Incorporated Preferred Stock 25,000 22,000
$65,000 $70,000

Instructions
(a) Prepare the adjusting entry (if any) for 2007, assuming the securities are classified as trading.
(b) Prepare the adjusting entry (if any) for 2007, assuming the securities are classified as availablefor-
sale.
(c) Discuss how the amounts reported in the financial statements are affected by the entries in (a)
and (b).

Solution Preview

The cost is $65,000 and the fair value is $70,000. There is an unrealized gain of $5,000

(a) Prepare the adjusting entry (if any) for 2007, assuming the securities are classified as trading.

Under trading securities, the unrealized gain or loss is reported in the income statement under other gains/losses. The journal entry is
Securities Fair Value Adjustment-Trading Dr 5,000
...

Solution Summary

The solution explains journal entries relating to available for sale & trading securities

$2.19