Explanation Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk. Find the missing amounts (a) to (i). (a) Compute available-for-sale investment, (at cost), for 2017. Security Number of Shares (Or Face Amount) × Cost per Share (Or Bond Value) = Cost of Investment Company A Stock 960 shares × $38.00 = $36,480 Company H Stock 1,900 shares × 28.80 = 54,720 Company R Stock 800 shares × 40.00 = 32,000 Company T Bonds $24,000 × 100% = 24,000 Total $147,200 Table (1) Therefore, available-for-sale investment, (at cost), for 2017 is $147,200. (b) Compute valuation allowance for available-for-sale investment, for 2017. Step 1: Compute available-for-sale investment, (fair value), for 2017. Security Number of Shares (Or Face Amount) × Fair Value per Share (Or Bond Value) = Fair Value of Investment Company A Stock 960 shares × $41.50 = $39,840 Company H Stock 1,900 shares × 26.00 = 49,400 Company R Stock 800 shares × 48.00 = 38,400 Company T Bonds $24,000 × 101% = 24,240 Total $151,880 Table (2) Step 2: Compute valuation allowance for available-for-sale investment, for 2017. Details Amount ($) Available-for-sale investments at fair value, December 31, 2017 (From Table-2) $151,880 Less: Available-for-sale investments at cost, December 31, 2017 (From Table-1) (147,200) Valuation allowance for available-for-sale investments $4,680 Table (3) Therefore, valuation allowance for available-for-sale investment, for 2017 is $4,680. (c) Compute available-for-sale investment, (fair value), for 2017. Security Number of Shares (Or Face Amount) × Fair Value per Share (Or Bond Value) = Fair Value of Investment Company A Stock 960 shares × $41.50 = $39,840 Company H Stock 1,900 shares × 26.00 = 49,400 Company R Stock 800 shares × 48.00 = 38,400 Company T Bonds $24,000 × 101% = 24,240 Total $151,880 Table (4) Therefore, available-for-sale investment, (at fair value), for 2017 is $151,880. (d) Compute interest receivable for 2017. Interest receivable = { Amount of debt investment × Rate of interest × Time period ( October 1 to December 31 ) } = $24,000×4% × 3 12 = $240 Therefore, interest receivable for 2017 is $240

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Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Chapter 15, Problem 4PB

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Solution Summary: The author identifies available-for-sale securities as short-term investments in debt and equity securities with an intention of holding the investment for strategic purposes like meeting liquidity needs, or managing interest risk.

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