When a trading security is sold,three journal entries are required: one to adjust the security to fair value,another to record the sale,and a third to adjust retained earnings.

Question

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When a trading security is sold, only two journal entries are required: one to record the sale (which includes removing the security at its cost and recording any gain or loss based on the difference between its sale price and its carrying value on the balance sheet), and another to adjust the income statement for the gain or loss on the sale (which affects net income and thus retained earnings indirectly through the income statement, not through a direct adjustment to retained earnings).

When a Trading Security Is Sold,three Journal Entries Are Required