Chapter 10B, Problem 1YT

A corporation has invested $50,000 in the securities of other companies. At the end of the year, that corporation’s portfolio has a market value of $52,000. Describe where these securities would be shown on the annual financial statements and at what amount under each of the conditions described.

1. 1. The investment is classified as trading securities.
2. 2. The investment is classified as available for sale.
3. 3. The investment is classified as held to maturity.

To determine

Explain that where the given securities would be shown on the annual financial statements and state the amount under each of the conditions explained.

Explanation of Solution

Situation 1:

In this situation, the securities will be shown in the current asset section of the balance sheet at a value of $52,000. The write-up will be balanced with a $2,000 unrealized gain on the income statement.

Situation 2:

In this situation, the securities will be shown depending on a company’s intent, either the current asset or the long-term asset section of the balance sheet at a value of $52,000. The write-up will be balanced with a $2,000 unrealized gain that will go directly to equity, as part of accumulated other comprehensive income.

Situation 3:

In this situation, the securities will be shown at their cost of $50,000 in the long-term asset section of the balance sheet (except the debt securities are maturing in the next year, in which case they would be reported under the current assets).