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Investment in Trading Securities - YouTube
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investment in trading securities would
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be when you invest in stock that you
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plan to sell in the near future and
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generally it's it's you know not more
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than 90 days you're not going to be
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holding on to it for very long when we
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use this when we invest in trading
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securities we are going to use what we
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call the different companies call it
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different things but we can call it may
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be the market value approach because
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we're going to be doing a year-end
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adjustment based on the market value
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that other companies call it different
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things but that's what I'm going to call
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it here is the market value method pace
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Corporation owns some trading securities
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and I just want to be clear that this
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investment in trading securities we
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would use this market that the the fair
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market value method if we own between 20
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and 50 / yeah between actually less than
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twenty percent if we own twenty to fifty
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percent we use the equity method we do
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not use the fair market value method so
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as of the end of the year of 2014 pace
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company owns yorkville company bonds
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that they paid fifty thousand for and
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koda Kodak Company bonds that they paid
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90,000 for so they have a total
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investment of 140,000 in trading
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securities these are they plan to sell
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these within 90 days at the end of the
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year the fair market value of these
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shares meaning what you can buy them for
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at the end of the year would be 48,000
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for yorkville and kodak company is
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ninety-nine thousand okay so the total
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fair market value of what their holdings
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are are 147 so they've still they
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haven't sold these stocks this is what
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they own these are the investments that
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they own however they've had a
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two-thousand-dollar loss but it's
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unrealized because it hasn't been sold
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and here they have a nine thousand
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dollar gain and again it's unrealized
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it's just on paper hasn't been sold so
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they have a net unrealized gain of seven
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thousand dollars now because it's a
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trading security we are going to
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recognize this unrealized gain even
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though we haven't actually sold it the
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idea being we like to show revenues or
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gains in the period in which their
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earned and we show expenses or losses in
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the period in which they're incurred so
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since during this last period the we had
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an unrealized gain we're going to go
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ahead and do an adjusting journal entry
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on 12 3114 to show this unrealized gain
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and the account that we're going to
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debit is market adjustment trading okay
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because this is a trading security and
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you'll see in a minute when we talk
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about available-for-sale securities that
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we want to differentiate is this a
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market adjustment for the trading or for
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the available for sale so will debit
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7,000 and we will credit unrealized
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gain now we're going to say dash income
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because this is to let us know that it's
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going to be this unrealized gain is
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going to be shown on the income
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statement and when we look at
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available-for-sale securities you'll see
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that the unrealized gain is shown on the
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equity in the stockholders equity
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section so we put income just as a
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little reminder as to where it's going
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to be shown so this market adjustment
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account is added to our investment
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account because it's a debit the
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investment account normally has a debit
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like stock investments and this is going
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to be added to it so on our balance
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sheet we would show on the balance sheet
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this is just a partial balance sheet
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under current assets you know there'd be
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cash and accounts receivable etc etc and
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then we would have investment in trading
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securities for our costs which is
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140,000 and then we would say plus
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market adjustment for 7,000 so our net
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would be 147,000
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ok
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