Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Textbook Question
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. The investment is classified as trading securities.
- 2. The investment is classified as available for sale.
- 3. The investment is classified as held to maturity.
Expert Solution & Answer
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).
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Students have asked these similar questions
For the following investments identify whether they are: (1) Trading Securities, (2) Available-for-sale
Securities, or (3) Held-to-Maturity Securities.
A. Purchase bonds maturing in 20 years. The company intends to use the cash flow generated by the
interest payments on the bond to provide employee bonuses.
B. A bond was purchased with the intent to sell as quickly as possible.
C. An investment grade bond that matures in 8 years was purchased. The company will probably hold the
bond until it matures and use the proceeds to retire maturing debt.
D. Five-year bonds of a troubled company were purchased this year for substantially below par value. The
bonds mature in 2 months.
I need proper answer to this question
Question:
For the following transactions
involving investments in marketable
securities assess the financial
statement effects of trading and of
available-for-sale securities.
(Assume that investments are
classified as trading.)
(1) Ohlson Co. purchases 5,200 common
shares of Freeman Co. at $16 cash per
share.
(2) Ohlson Co. receives a cash dividend
of $1.25 per common share from
Freeman.
(3) Year-end market price of Freeman
common stock is $17.5 per share.
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