[JT]

Sorry dumb question but this is confusing me a bit. On the Wiley we have this example:

Trading Securities:

U.S. Government Bonds – Cost = $100,000 Fair Value = $110,000

Municipal Bonds – Cost = $70,000 Fair Value = $85,000

Available-for-Sale securities:

Equity securities – Cost = $110,000 Fair Value = $80,000

THEN after the transfer we get:

Trading Securities:

U.S. Government Bonds – Cost = $100,000 Fair Value = $110,000

Available-for-Sale securities:

Equity securities – Cost = $110,000 Fair Value = $80,000

Municipal Bonds – Cost = $85,000 Fair Value = $85,000

====== ======

My comment is that up to this point everything is good, I understand, however, then I have this (on Wiley):

Assuming that the adjusting entry to report changes in fair value for the current period is not yet recorded, the entry to record the transfer is as follows:

D) Available-for-Sale Securities 85,000

C) Unrealized Holding Gain-Income 15,000

C)Trading Securities 70,000

My issue is that this looks misleading since in any transfer from Trading to any other category there is no adjustment necessary because the gain or loss has already been recognized in income. In my view shouldn’t this JE just show a debit to “AFS Security” for $85,000 & credit to “Trading securities” for $85,000? I know Wiley states that “assuming the JE entry is not yet recorded” when giving this JE example but still, this is a bit confusing. Am I missing something obvious here?

[monikernc]

can you post the entire question? if not, remember that changes in FV for trading securities are recorded in net income. changes in FV of AFS are recorded in OCI

when purchased as trading securities the asset would have been recorded at its $70,000 cost.

any dates provided in the question would be helpful to assist with explanation. it appears the asset's classification is being changed as the change in fair value is being recorded as an unrealized gain in net income.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

I think two sets of entries could have been made as follows:

Dr Trading Securities $15,000
Cr Unrealized Holding Gain – Income $15,000

Then,

Dr Available for sale securities $85,000
Cr Trading securities $85,000

But they present one entry because the transfer is being made before the adjusting entry was made to record the change in fv to income. Had the asset been an AFS to begin with its change in fv would have been to Unrealized holding gain/loss – OCI

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Skynet]

You are in Divorce Court with you EXwife.

She takes you for everything you have including all the stocks & bonds in you safety deposit box.

Thus the result of Security Transfers.

[JT]

Hey monikernc, thanks! These Wiley examples don't give us any dates and I basically wrote down the entire question I got from that site (I currently am actually using Becker). I agree with the JEs and comments; I am reviewing now an example on Becker that has dates and if I still have questions I will let you know (bear with me and many thanks!). Btw congrats on your scores, I got a 76 in AUD but it has expired – can I just say I was BORED beyond belief studying for Auditing – I could not take the other sections for personal reasons. You have just one test to go, I hope I can say the same soon. 🙂

[monikernc]

I see skynet offered his assistance, too. I enjoy it when he drops in. Audit was boring. I fear REG. BEC was a hot mess. FAR, I just got lucky.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Stilgoin]

@monikernc on FAR – pfffft! The harder you work, the luckier you get. 😉 Do not fear REG. It was easier to apply common sense to than the rest, in my opinion.

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[monikernc]

I worry about the time on REG. I barely finished BEC in 3 hours and REG has same number of questions with 6 sims.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[JT]

Hi moniker and anyone else that can respond 🙂 – OK, here is an example with a date; if you would please give me the JEs on transfers happening from AFC into Trading – I have mine and would like to compare to make sure I am getting this right, I think I am getting too much into this and overthinking it. 🙁

The following information pertains to Fox Inc.’s portfolio of marketable securities for the Year ended Dec 31, Year 1 and Dec 31, Year 2.

Trading Securities on 12/31/Year 1:
Security ABC -> Cost = $150,000 Fair Value = $160,000 THEN the Fair Value on DEC Year 2 is $155,000

Available-for-Sale securities on 12/31/Year 1:
Security DEF -> Cost = $170,000 Fair Value = $175,000 THEN the Fair Value on DEC Year 2 is $160,000

PS.: English is not my first language and despite my username I am a lady 😉

[Stilgoin]

@monikerNC Yes- time was an issue with REG. I finished with less than a minute left on the timer. All I can suggest is go with the Sims you know first, and work your way to the ones you don’t, and I normally do not second guess myself. You will be fine. You have high scores. No worries. 😉

B | 62, 78
A | 73, 67, 79
R | 82
F | 59, 59, Waiting

Ethics | 93

"Success is not final, failure is not fatal: it is the courage to continue that counts."
~Winston Churchill

“In a world full of critics, be an encourager."

[monikernc]

I would prefer you post and I will confirm or correct you entries.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[JT]

@ monikerNC – If the transfer is dated 12/31/Y1 then:

D) Security DEF (Trading) – $175,000.00
C) Security DEF (AFS Sec.) – $170,000.00
C) Realized Gain on transfer to Trading (DEF) – $5,000.00

IF transfer on 12/31/Y2:

D) Security DEF (Trading) – $160,000.00
C) Security DEF (AFS Sec.) – $160,000.00

Then to transfer the Unrealized gain I have on “AOCI” from the AFS on 12/31/Y2:

D) AOCI
C) Unrealized Gain on AFS Sec. (DEF) – $10,000.00

D) Unrealized Gain on AFS Sec. (DEF) – $10,000.00
C) Realized Gain on transfer to Trading (DEF) – $10,000.00

On a similar note about this subject, I have another question: Becker states that as a rule “When marketable equity securities are transferred between trading and available-for-sale, the transfer is made at fair value, and the difference (if any) is recorded as UNrealized loss and charged to the income statement. The new carrying amount becomes the basis for any future gain or loss.

HOWEVER, the Becker flash card states that “For a security transferred into the trading category, the difference is treated as a REalized gain or loss and is recognized on the income statement. For a security transferred from the trading category, the UNrealized holing gain or loss will already have been recognized in earnings. = So maybe this is my English but should I understand that on that note (not on the Flashcard) it is specifically referring to only transfers from trading to AFS?

Thanks!

[monikernc]

The question you posted is not transferring either security from one category to another. The 12/31/Y1 entries will record the first change in fair value for each security. The 12/31/Y2 entry will record the change in fair value again. Neither security is being transferred. The question wants you to do changes in fair value for each type of security for year 1 and again for year 2.

Read the paragraphs you posted again. The first paragraph is talking about transfers from trading to AFS. This is the example you asked about last night that I provided entries for above.

From the flashcard, the first part is for transfers from AFS to Trading Securities:

HOWEVER, the Becker flash card states that “For a security transferred into the trading category, the difference is treated as a REalized gain or loss and is recognized on the income statement.

The second part of the paragraph is talking about transfers from Trading Securities to AFS:

For a security transferred from the trading category, the UNrealized holing gain or loss will already have been recognized in earnings.

The direction of the transfer is what makes a difference.

You should first post your questions in the FAR study thread.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[JT]

@ monikernc I know that, but I am asking to make it as if it were a transfer. I will ask someone with Becker, thanks for all your help!

[Author]

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