Chapter 15, Problem 2GLP

To determine

1.

Introduction:

Available for Sale securities are those securities which can neither be classified as Trading securities nor as Held to Maturity Security.

Trading securities are securities which are intended to be sold in the short term.

Held to Maturity Securities are the investments which are intended to be held until maturity date.

Available for sale securities may be classified as long-term assets if they are intended to be held for a period of more than a year. Available for Sale securities are recorded at their fair values and any unrealized gains or losses are reported in other comprehensive income until they have been realized. (i.e. by selling the securities)

A company or a person is considered to have significant control when it holds or owns 20 % or more of another company's stock. However, exceptions can occur. Significant Control signifies the power that one company can exert over another company. Such power includes representational powers on the Board of Directors, taking part in development of company policy and the interchanging of managerial personnel.

To Determine:

The amount that Stoll Co. should report on its December 31, 2017 Balance Sheet for its long-term investments in available-for-sale securities.

To determine

2.

Introduction:

As per GAAP, Available for Sale securities are revalued at their fair values at each year end dates. This revaluation is done either by debiting Unrealised Gain/Loss- Other Comprehensive Income (OCI) A/c in case of decrease in value of the securities and vice versa. Such revaluations are also called fair value adjustments.

To Prepare:

Adjusting entry as on 31^st December, 2017 to record fair value adjustments for the long-term available-for-sale securities.

To determine

3.

Introduction:

The gains or losses on transactions relating to available-for-sale security to be reported in income statement are the realized gains or losses on sale of the securities. Realized gain/loss is arrived at by comparing the cash proceeds received on sale of securities with the carrying amount of investment and the debit/credit balance in Unrealized Gain/Loss A/c.

To Determine:

The amount of gain or loss on transactions relating to long-term available for sale securities that Stoll Co. should report on its December 31, 2017, income statement.