Kitty Company began operations in the current year and acquired short-term debt investments in trading securities. The year-end cost and fair values for its portfolio of these debt investments follow. Portfolio of Trading Securities Cost Fair Value Tesla Bonds $ 13,500 $ 10,125 Nike Bonds 22,000 23,100 Ford Bonds 5,500 4,400 Prepare journal entries to record the December 31 year-end fair value adjustment for the above debt securities.

Find below the answers and explanation

Explanation:

First we calculate the Loss or gain on each security

(Subtract the fair value from the security cost

FOR TESLA BOND

Securities Cost = $ 13,500

Fair Value = $ 10,125

Gain or Loss = $13500 - $ 10,125

= $3,375

FOR NIKE BOND

Securities Cost = $22,000

Fair Value = $23,100

Gain or Loss = $22,000 - $23,100

= −1,100

FOR FORD BOND

Securities Cost = $5,500

Fair Value = $4,400

Gain or Loss = $5,500 - $4,400

= $1,100

record the securities at fair value in the balance sheet with their respective gain or loss in profit and loss column by making these entries in the journal

1. For TESLA BOND

Loss on revaluation of investment Debit:$3,375

Investment in Telsa bond Credit: $3,375

To record the loss on telsa investment.

2. FOR NIKE BOND

Nike Investment     Debit: −$1,100

       Gain on revaluation of investment  Credit: −$1,100  

To record the Gain on Nike investment.

3. FOR FORD BOND

Loss on revaluation of investment           Debit: $1,100

                     Investment in Ford bond           Credit:  $1,100

To record the loss on Ford investment.

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