ACCTMIS 2200 Lecture Notes - Lecture 12: Historical Cost, Equity Method

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fuchsiaelk478

21 Mar 2017

School

Ohio State University

Department

Accounting and Management Info

Course

ACCTMIS 2200

Professor

Marc Smith

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ACCTMIS 2200 Full Course Notes

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Buying bonds from another company & repaid with interest. Percentage of ownership (applies to equity securities) to make decisions. Investing in debt/equity securities and own less than. When investment is acquired, record it at a cost (asset) At end of year, make adjusting entry to reflect any changes in market value of investment (mark-to-market adjustment) b) c) i) When investments are sold, record cash received from sale and gain/loss from sale i) ii) Realized gain/losses: gains and losses resulting from sale of investments. Unrealized gain/losses: gains and losses resulting from changes in value of investments - used in mark-to-market. Exam 3 material page 1 investments - used in mark-to-market adjustment. Investing in debt/equity securities and own more than 20% of company"s stock a) b) When investment is acquired, record it as a cost. If dividends are received, record them as a.

Related Questions

1. Sork Inc. has a portfolio of marketable securities classified as available-for-sale securities. At the end of the year, the fair values of the securities exceeded their costs. How should Sork report the unrealized gains on its portfolio of marketable securities in the statement of stockholdersâ equity?

I. Only the cumulative amount of net gains are reported in the statement of stockholdersâ equity.

II. Only current period changes in the value of the investment are reported in the statement of stockholdersâ equity.

III. A correct journal entry to report unrealized gains would be an increase to the investment and an increase to other comprehensive income.

Multiple Choice

a. I and III only

b. II and III only

c. I only

d. III only

2. During 20X9, Alpha Co. purchased debt securities classified as trading securities. At the end of 20X9, the market value of Alphaâs investment in debt securities exceeded the amortized cost. Alpha should report the debt securities on its 20X9 balance sheet at

Multiple Choice

a. Amortized cost

b. Market value

c. Cost

d. Lower of cost or market

3. Misk Co. purchased the following securities during 20X7 to be classified as held-to-maturity securities, trading securities, or available-for-sale securities:

I. Debt securities bought and held for the purposes of reselling in the near future.

II. U.S. Treasury bonds that Misk intends and is able to hold to maturity.

III. Convertible preferred stock that Misk does not intend to sell in the near future.

Which of above securities purchased by Misk should be classified as available-for-sale securities?

Multiple Choice

a. I and II only

b. I and III only

c. III only

d. None of the above

4. Data regarding Rock Corp.âs available-for-sale securities follows:

	Cost		Market Value
December 31, 20X7	$	80,000	$	65,000
December 31, 20X8	$	80,000	$	90,000

Differences between cost and market values are considered temporary. Rock does not elect the fair value option of accounting for available-for-sale securities.

Rockâs accumulated other comprehensive income would be

Multiple Choice

a. $0

b. $10,000

c. $25,000

d. $15,000

beigefox320

Cited here are four unrelated cases involving marketable equity securities:

1. A noncurrent portfolio of available-for-sale equity securities with an aggregate market value in excess of cost; includes one particular security whose market value has declined to less than one-half of the original cost.

2. The balance sheet of a company does not classify assets and liabilities as current and noncurrent. The portfolio of available-for-sale equity securities includes securities normally considered current that have a net cost in excess of market value of $2,000. The remainder of the portfolio has a net market value in excess of cost of $5,000.

3. An available-for-sale marketable equity security, whose market value is currently less than cost, is classified as noncurrent but is to be reclassified as current.

4. A companyâs noncurrent portfolio of marketable equity securities consists of the common stock of one company. At the end of the prior year, the market value of the security was 50% of original cost, and this effect was properly reflected in a Valuation Adjustment account. However, at the end of the current year, the market value of the security had appreciated to twice the original cost. The security is still considered noncurrent at year-end.

Required:

For each of the cases, describe how the information provided affects the classification, carrying

value, and income reported for that companyâs investment securities.

indigosnake393

Stoll Co.âs long-term available-for-sale portfolio at December31, 2014, consists of the following.

Available-for-Sale Securities	Cost		Fair Value
80,000 shares of Company A common stock	$	1,049,600	$	921,000
48,000 shares of Company B common stock		358,750		348,000
44,000 shares of Company C common stock		1,395,500		1,341,875

Stoll entersinto the following long-term investment transactions during year2015.

Jan.	29	Sold 24,000shares of Company B common stock for $178,375 less a brokerage feeof $3,500.
Apr.	17	Purchased 23,000 shares of Company W common stock for $495,000plus a brokerage fee of $4,100. The shares represent a 30%ownership in Company W.
July	6	Purchased 9,000 shares of Company X common stock for $263,125plus a brokerage fee of $4,100. The shares represent a 10%ownership in Company X.
Aug.	22	Purchased 100,000 shares of Company Y common stock for $690,000plus a brokerage fee of $8,900. The shares represent a 51%ownership in Company Y.
Nov.	13	Purchased 13,000 shares of Company Z common stock for $523,800plus a brokerage fee of $6,900. The shares represent a 5% ownershipin Company Z.
Dec.	9	Sold 80,000 shares of Company A common stock for $1,032,500 lessa brokerage fee of $4,100.

The fair valuesof its investments at December 31, 2015, are:

	Fair Value
B	$	172,750
C	$	1,230,625
W	$	392,500
X	$	246,250
Y	$	1,072,500
Z	$	567,600

Determine the amount Stoll should report on its December 31,2015, balance sheet for its long-term investments inavailable-for-sale securities. and Prepare any necessary December31, 2015, adjusting entry to record the fair value adjustment forthe long-term investments in available-for-sale securities.

My question is how do I calculate to find the cost of fair valueadjustment computation available for sale securities?

amberjackal86

ACCTMIS 2200 Lecture Notes - Lecture 12: Historical Cost, Equity Method

ACCTMIS 2200 Full Course Notes

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