>> Investment and trading
securities would be
when you invest in
stock that you plan
to sell in the near future.
And generally, it's, you
know, not more than 90 days.
You're not going to be
holding on to it for very long.
When we use this-- when we
invest in trading securities,
we're going to use
what we call the--
different companies call
it different things,
but we can call it maybe
the market value approach,
because we're going to be doing
a year-end adjustment based
on the market value.
Other companies call
it different things,
but that's what I'm
going to call it here,
it's the market value method.
Pace Corporation owns
some trading securities.
And I just want to be
clear that this investment
and trading securities,
we would use this market--
the fair market value method if
we own between 20 and 50 or--
yes, between-- actually,
less than 20 percent.
If we own 20 to 50 percent,
we use the equity method.
We do not use the fair
market value method.
So, as of the end
of the year of 2014,
Pace Company owns
Yorkville Company bonds
that they've paid 50,000
for and Kodak Company bonds
that they paid 90,000 for.
So, they have a total
investment of 140,000
in trading securities.
These are-- they plan to
sell these within 90 days.
At the end of the year, the fair
market value of these shares,
meaning what you could buy them
for at the end of the year,
would be 48,000 for Yorkville
and Kodak Company is 99,000, OK?
So, the total fair market value
of what they're holdings
are are 147.
So, they've still-- they
haven't sold these stocks.
This is what they own.
These are the investments
that they own.
However, they've had a $2,000
loss but it's unrealized
because it hasn't been sold.
And here, they have a
$9,000 gain, and again,
it's unrealized, it's just
on paper, hasn't been sold.
So, they have a net
unrealized gain of $7,000.
Now, because it's a trading
security, we are going
to recognize this unrealized
gain even though we haven't
actually sold it, the idea
being we want to show revenues
or gains in the period
in which they are earned,
and we show expenses
or losses in the period
in which they are incurred.
So, since during this last
period we had an unrealized
gain, we're going to go ahead
and do an adjusting
journal entry on 12/31/14
to show this unrealized gain.
And the account that we're going
to debit is market
adjustment trading, OK,
because this is a
trading security.
And you'll see in a minute
when we talk about available
for sale securities that we want
to differentiate is
this a market adjustment
for the trading or for
the available for sale.
So, we'll debit 7,000 and we
will credit unrealized gain.
Now, we're going to say
dash income, because this is
to let us know that
it's going to be--
this unrealized gain
is going to be shown
on the income statement.
And when we look at
available for sale securities,
you'll see that the unrealized
gain is shown on the equity,
in this stockholder's
equity section.
So, we put income just as
a little reminder as to
where it's going to be shown.
So, this market adjustment
account is added
to our investment account
because it's a debit.
The investment account
normally has a debit,
like stock investments, and
this is going to be added to it.
So, on our balance sheet--
we would show on
the balance sheet--
this is just a partial balance
sheet and recurrent assets,
you know, there'd be cash
and accounts receivable,
et cetera, et cetera.
Then we would have investment
and trading securities
for our cost, which is 140,000,
and then we would say plus
market adjustment for 7,000.
So, our net would
be 147,000, OK?
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