Brooks Co. purchases debt investments as trading securities at a cost of $61,000 on December 27. This is its first and only purchase of such securities. At December 31, these securities had a fair value of $66,000.1. Prepare the December 27 entry for the purchase of debt investments. 2. Prepare the December 31 year-end fair value adjusting entry for the trading securities' portfolio and the January 3 entry when Brooks sells a portion of its trading securities (costing $30,500) for $31,750 cash.

Dr short-term investment-trading $61,000

Cr Cash $61,000

Dr fair value adjustment-trading $5,000

Cr unrealized gain $5,000

Dr cash $31,750

Cr short-term investment-trading $30,500

Cr realized gain on sale of short-term investment ($31,750-$30,500) $1,250

Explanation:

The cash paid for the purchase of trading securities would be credited with $61,000 while the debit goes to short-term investment-trading

The 31st December year-end fair value adjusting entry is $5,000 ($66,000-$61,000) unrealized gain which would be debited to fair value adjustment-trading securities while the credit goes to unrealized gain-trading securities.