Investment in Trading and AFS SecuritiesIn 2019, a company purchases debt securities at a...

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Accounting

Investment in Trading and AFS Securities
In 2019, a company purchases debt securities at a par value of$500,000. Their year-end value is $520,000. In 2020, thesesecurities are sold for $525,000 and new securities are purchasedfor $700,000. At the end of 2020, the securities have not yet beensold, and have a value of $600,000.
Required
Prepare the journal entries to record the above information for2019 and 2020, assuming that:
a. The securities are categorized as trading securities.
General Journal
Date Description Debit Credit
2019 ______________________

To record purchase of trading securities.

To record change in value for trading securities atyear-end.
2020 Cash

Investment in trading securities
To record sale of trading securities.
_
_
To record purchase of new trading securities.
___
_
To record change in value for trading securities atyear-end.
b. The securities are categorized as AFS securities, and (1) thecompany intends to sell the securities held at the end of 2020before the loss is recovered, or (2) the company intends to holdthe securities, and their decline in value is attributed toexpected credit losses, or (3) the company intends to hold thesecurities, and their decline in value is attributed to a rise inmarket interest rates.
General Journal
Date Description Debit Credit
b (1) 2019 ___
_
To record purchase of AFS securities.

________
To record change in value for AFS securities at year-end.
2020 Cash

Investment in AFS securities
_
To record slae of AFS securities
_____
_
To record purchase of new AFS securities.
_ Answer Answer
_ Answer Answer
To record change in value for AFS securities at year-end.
(2) 2020 Cash Answer Answer
Answer Answer
Investment in AFS securities Answer Answer
Answer Answer
To record sale of AFS securities.
Answer Answer
Answer Answer
To record purchase of new AFS securities.
Answer Answer
Answer Answer
To record impairment loss for AFS securities at year-end.
(3) 2020 Cash Answer Answer
Answer Answer
Investment in AFS securities Answer Answer
Answer Answer
To record sale of AFS securities.
Answer Answer
Answer Answer
To record purchase of AFS securities.
_ Answer Answer
_________________ Answer Answer
To record change in value for AFS securities at year-end.

Answer & Explanation Solved by verified expert

3.9 Ratings (747 Votes)

a. The securities are categorized as trading securities.
General Journal
Date	Description	Debit	Credit
2019	Investment in Trading Securities	$500,000.00
	Cash		$500,000.00
	To record purchase of trading securities.
	Investment in Trading Securities	$20,000.00
	Unrealized gain- Trading Securities ($520,000 - $500,000)		$20,000.00
	To record change in value for trading securities at year-end.
2020	Cash	$525,000.00
	Gain on sale of Trading Investment		$5,000.00
	Investment in trading securities		$520,000.00
	To record sale of trading securities.

	Investment in Trading Securities	$700,000.00
	Cash		$700,000.00
	To record purchase of new trading securities.

	Unrealized Loss - Trading Securities ($600,000 - $700,000)	$100,000.00
	Investment in Trading Securities		$100,000.00
	To record change in value for trading securities at year-end.

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Transcribed Image Text

In: AccountingInvestment in Trading and AFS SecuritiesIn 2019, a company purchases debt securities at a par...Investment in Trading and AFS SecuritiesIn 2019, a company purchases debt securities at a par value of$500,000. Their year-end value is $520,000. In 2020, thesesecurities are sold for $525,000 and new securities are purchasedfor $700,000. At the end of 2020, the securities have not yet beensold, and have a value of $600,000.RequiredPrepare the journal entries to record the above information for2019 and 2020, assuming that:a. The securities are categorized as trading securities.General JournalDateDescriptionDebitCredit2019________________________________________________________________________________________________________To record purchase of trading securities.________________________________________________________________________________________________________To record change in value for trading securities atyear-end.2020Cash______________________________Investment in trading securitiesTo record sale of trading securities.______________________________________________________________________________________To record purchase of new trading securities.__________________________________________________________________________________________To record change in value for trading securities atyear-end.b. The securities are categorized as AFS securities, and (1) thecompany intends to sell the securities held at the end of 2020before the loss is recovered, or (2) the company intends to holdthe securities, and their decline in value is attributed toexpected credit losses, or (3) the company intends to hold thesecurities, and their decline in value is attributed to a rise inmarket interest rates.General JournalDateDescriptionDebitCreditb (1)2019__________________________________________________________________________________________________To record purchase of AFS securities.________________________________________________________________________________________________To record change in value for AFS securities at year-end.2020Cash______________________________Investment in AFS securities_______________________________To record slae of AFS securities__________________________________________________________________________________________________To record purchase of new AFS securities._________________________________________AnswerAnswer_________________________________________AnswerAnswerTo record change in value for AFS securities at year-end.(2)2020CashAnswerAnswer________________________________________________AnswerAnswerInvestment in AFS securitiesAnswerAnswer________________________________________________AnswerAnswerTo record sale of AFS securities.________________________________________________AnswerAnswer________________________________________________AnswerAnswerTo record purchase of new AFS securities.________________________________________________AnswerAnswer________________________________________________AnswerAnswerTo record impairment loss for AFS securities at year-end.(3)2020CashAnswerAnswer________________________________AnswerAnswerInvestment in AFS securitiesAnswerAnswer________________________________AnswerAnswerTo record sale of AFS securities.__________________________________AnswerAnswer__________________________________AnswerAnswerTo record purchase of AFS securities._______________________________AnswerAnswer_______________________________AnswerAnswerTo record change in value for AFS securities at year-end.