Using contra and adjunct accounts for securities available for sale. Exhibit 11.15 illustrates the effects on the
Question:
Using contra and adjunct accounts for securities available for sale. Exhibit 11.15 illustrates the effects on the T-accounts of transactions in marketable securities, accounted for first as trading securities and then as short-term securities available for sale. The illustration covers two years. In illustrating the T-accounts for Securities Available for Sale, we use separate contra/adjunct accounts for both Marketable Securities and Owners' Equity. We designate these accounts as X/A: when the asset account has a debit balance, it is an adjunct; when it has a credit balance it is a contra account. When the equity account has a debit balance, it is a contra account; when it has a credit balance, it is an adjunct account. An adjunct account accumulated additions to another account, whereas a contra account accumulated subtractions from another account. You do not have to use these contra/adjunct accounts in working problems, but some students find it easier to do so.
a. Use the following facts in preparing the journal entries for Year 1 and Year 2, using a contra/adjunct account. In Year 1, the firm purchased a portfolio of marketable securities for \(\$ 1,000\), which it holds as securities available for sale, current assets. At the end of Year 1, the portfolio had a market value of \(\$ 1,200\). During Year 2 , the firm sold some of the securities, for \(\$ 120\), that had originally cost \(\$ 100\) but that had a market value of \(\$ 105\) at the end of Year 1. At the end of Year 2 , the remaining securities had a market value of \(\$ 750\). Record the journal entries from the end of both Year 1 and Year 2.
b. Explain how using the contra/adjunct accounts for Securities Available for Sale can facilitate solving problems involving holding gains and losses.
Step by Step Answer:
Financial Accounting An Introduction To Concepts Methods And Uses
ISBN: 9780324183511
10th Edition
Authors: Clyde P. Stickney, Roman L. Weil