Skip to main content
Back

Trading Securities quiz

Control buttons has been changed to "navigation" mode.
1/15
  • What is the definition of a trading security?
    A trading security is a short-term investment expected to be sold in the near term through active trading.
  • How are trading securities initially measured on the balance sheet?
    Trading securities are initially measured at cost when first purchased.
  • At what value are trading securities reported on subsequent balance sheets?
    They are reported at fair value on subsequent balance sheets.
  • Where do unrealized gains or losses from trading securities appear in the financial statements?
    Unrealized gains or losses appear on the income statement.
  • What is the journal entry to record the purchase of trading securities?
    Debit investment in trading securities and credit cash for the purchase amount.
  • How is dividend revenue from trading securities recorded?
    Debit cash and credit dividend revenue for the amount received.
  • Is dividend revenue from trading securities considered operating or non-operating income?
    It is considered non-operating income and shown separately from operating income on the income statement.
  • What triggers an unrealized gain or loss for trading securities?
    A change in the fair value of the security at the reporting date triggers an unrealized gain or loss.
  • How do you adjust the investment account for an unrealized gain?
    Debit the investment account and credit unrealized gain for the amount of the increase in fair value.
  • How do you adjust the investment account for an unrealized loss?
    Credit the investment account and debit unrealized loss for the amount of the decrease in fair value.
  • When are realized gains or losses recognized for trading securities?
    Realized gains or losses are recognized when the securities are sold.
  • How is a realized gain or loss calculated upon the sale of trading securities?
    It is the difference between the selling price and the book value at the last revaluation.
  • What is the journal entry to record the sale of trading securities at a gain?
    Debit cash for the sale amount, credit investment for its book value, and credit gain on sale for the difference.
  • How often should the fair value of trading securities be updated?
    The fair value should be updated at each reporting date, such as at year-end.
  • What is the main difference in reporting unrealized gains/losses between trading securities and available-for-sale securities?
    For trading securities, unrealized gains/losses go to the income statement, while for available-for-sale securities, they go to other comprehensive income.