Question

23. Panda Express has invested in bond securities issued by several companies. Pand Express has the intention to actively buy and sell this securities to obtain profit. This investment is classified as:

Select one:

a. a trading security

b. a held-to-maturity security

c. an available-for-sale security

d. a significant influence security

e. a controlling influence security

24. Kourtney Corp. paid $58,500 for Kim Company's 8% bonds, par value $60,000, that mature in ten-years. The bonds pay interest semiannually on June 1 and December 1. Kourtney plans to actively trade the bonds for profit and expects to sell them in less than a year. When the bonds are purchased, Kourtney should prepare the following journal entry:

Select one:

a. debit Debt Investments—Trading, $60,000; credit Cash, $60,000

b. debit Bonds Receivable, $60,000; credit Discount on Bonds Receivable, $1,500; credit Cash, $58,500

c. debit Debt Investments—AFS, $58,500; credit Cash, $58,500

d. debit Debt Investments—HTM, $58,500; credit Cash, $58,500

e. debit Debt Investments—Trading, $58,500; credit Cash, $58,500

Answer 1

23	a) Trading securities are the investments where the investors intention is to actively buy and sell this securities to obtain profit. Further, that are not held for maturity or earning infact that are planned to sell in the near future. Any change in fair value i.e.unrealised profit or loss is recognised through Profit & Loss and not through OCI. Further, any dividend income on such security is to be recognised in Profit & Loss a/c.
24	Kourtney should prepare the following journal entry:
	Investment held for Trading
		Particulars	Debit	Credit
	e	Investments—Trading	$    58,500.00
		Cash		$    58,500.00
		(To record purchase of investment held for trading )