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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Indicate where each of the following items 1 through 5 is reported on financial statements.
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2. Held-to-maturity securities (due in 15 years)
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Paris Inc. began operations in Year 1. Following is a series of transactions and events involving its longtermdebt investments in available-for-sale securities.Year 1Mar. 10 Purchased Apple bonds for $30,600.Apr. 7 Purchased Ford notes for $56,250.Sep. 1 Purchased Polaroid bonds for $28,200.Dec. 31 Fair values for debt in the portfolio are Apple, $33,000; Ford, $54,600; and Polaroid, $29,400.Year 2Apr. 26 Sold all of the Ford notes for $51,250.June 2 Purchased Duracell bonds for $34,650.June 14 Purchased Sears notes for $25,200.Nov. 27 Sold all of the Polaroid bonds for $30,600.Dec. 31 Fair values for debt in the portfolio are Apple, $31,000; Duracell, $32,400; and Sears, $27,600.Year 3Jan. 28 Purchased Coca-Cola bonds for $40,000.Aug. 22 Sold all of the Apple bonds for $25,800.Sep. 3 Purchased Motorola notes for $84,000.Oct. 9 Sold all of the Sears notes for $28,800.Oct. 31 Sold all of the Duracell bonds for $27,000.Dec. 31 Fair values for debt in the portfolio are Coca-Cola, $48,000,…
At December 31, 2021, Hull-Meyers Corp. had the following investments that were purchased during 2021, its first year of operations:
Trading Securities:
Security A
Security B
Totals
Securities Available-for-Sale:
Security C
Security D
Totals
Securities to Be Held-to-Maturity:
Security E
Security F
Totals
Trading Securities
Security A
Security B
Securities Available-for-Sale
Security C
Security D
Securities to be Held-to-Maturity
Security E
Security F
Totals
Amortized cost
Reported on Balance Sheet
as:
Current assets
$ 905,000
110,000
$1,015,000
Noncurrent
assets
$ 705,000
905,000
$1,610,000
$ 495,000
620,000
$1,115,000
No investments were sold during 2021. All securities except Security D and Security F are considered short-term investments. None of
the fair value changes is considered permanent.
Required:
Complete the following table. (Amounts to be deducted should be indicated with a minus sign.)
Fair Value
$915,500
104,900
$1,020,400
$ 784,500
920, 200
$1,704,700
Net Income
(I/S)
$…
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