Question

qs 15 - 3 (algo) accounting for debt investments classified as trading lo p1
prepare hertog companys journal entries to record the following transactions for the current year.
may 7 purchases kraft bonds as a short - term investment in trading securities at a cost of $10,990.
june 6 sells its entire investment in kraft bonds for $11,510 cash.
view transaction list
journal entry worksheet
1 2
purchases kraft bonds as a short - term investment in trading securities at a
cost of $10,990.
note: enter debits before credits.

Explanation:

Step1: Record purchase of bonds

When purchasing bonds as trading securities, we debit the Trading Securities account (an asset) and credit Cash (another asset).
May 7

Date	General Journal	Debit	Credit
	Cash		$10,990$

Step2: Record sale of bonds

When selling the bonds, we debit Cash (increase in asset) for the amount received, credit Trading Securities (decrease in asset) for the original cost, and credit Gain on Sale of Investments (a revenue - type account, which increases equity) for the difference ($11,510 - 10,990=520$).
June 6

Date	General Journal	Debit	Credit
	Trading Securities		$10,990$
	Gain on Sale of Investments		$520$

Answer:

For May 7: Debit Trading Securities $10,990$; Credit Cash $10,990$.
For June 6: Debit Cash $11,510$; Credit Trading Securities $10,990$; Credit Gain on Sale of Investments $520$.