On June 15,2014,Bellows Corp.acquired 100 shares of Sonny,Inc.for $75 per share as a trading security.On December 17,2014,Bellows sold the stock for $115 per share.How would the company record this transaction?
A)Debit Cash for $11,500,credit Short-Term Investments-Trading for $7,500,and credit Gain on Sale of Short-Term Investments for $4,000.
B)Debit Cash for $11,500,credit Long-Term Investments-Trading for $7,500,and credit Gain on Sale of Long-Term Investments for $4,000.
C)Debit Cash for $11,500,credit Short-Term Investments-Trading for $7,500,and credit Fair Value Adjustment-Trading for $4,000.
D)Debit Cash for $11,500,credit Long-Term Investments-Trading for $7,500,and credit Fair Value Adjustment-Trading for $4,000.
E)Debit Fair Value Adjustment-Trading for $4,000 and credit Gain on Sale of Short-Term Investments for $4,000.

Question

Quizplus · Accepted Answer

The acquisition of the trading security is recorded as a debit to Short-Term Investments-Trading and a credit to Cash. 
When the security is sold, it is recorded as a debit to Cash for the sales price, a credit to Short-Term Investments-Trading for the original cost, and a credit to Gain on Sale of Short-Term Investments for the difference between the sales price and the original cost. Therefore, the correct option is A.