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, these securities are sold for $525,000 and new securities are purchased for $700,000. At the end of 2020, the securities have not yet been sold, and have a value of $600,000.

Required Prepare the journal entries to record the above information for 2019 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 at year-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 at year-end.

b. The securities are categorized as AFS securities, and (1) the company intends to sell the securities held at the end of 2020 before the loss is recovered, or (2) the company intends to hold the securities, and their decline in value is attributed to expected credit losses, or (3) the company intends to hold the securities, and their decline in value is attributed to a rise in market 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.