ACG 2021 Chapter 5: Short term investment and receivable

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rubywoodchuck574

11 Feb 2017

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Short-term investments and receivables: companies invest in debt or equity securities for at least 2 reasons: Strategic reasons like obtaining the ability to influence another company: to be classified as a current asset, an investment must meet both following criteria: Must be liquid (easily convertible to cash) Convert to cash within one year or current operating cycle, whichever is longer, Use it to pay a current liability: other than that, the investment is classified as a long-term asset, investment in securities. Expected to be sold within the near term through active trading. Generate income or losses on a day-to-day basis through changes in their prices. Held with intent of selling some time in the future. Not classified as either trading or held-to-maturity. Debt securities (bond, notes, or other instruments with established maturity dates) Investor has intent and ability to hold until they mature. Trading securities: unrealized gains or losses.

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

Kroshka Holdings Corporation has several investments in debt and equity securities of other companies:

1. 10-year BCE bonds, intended to be held for the duration of the bonds

2. 10-year GE bonds, intended to be sold if interest rates go down

3. 5-year Government of Canada bonds, intended to be sold if cash is needed

4. A 180-day treasury bill

5. Bank of Montreal preferred shares, purchased for the dividend income

6. TMX common shares, purchased to sell in the near term at a profit. These shares are part of an investment portfolio that is actively traded.

Instructions:

a) Indicate whether each of the above investments is a passive or strategic investment

b) Indicate whether each of the above investments would be classified as a short-term (current assest) of long-term investment on Kroshka Holdings' balance sheet.

c) For each investment that you classified as passive in (a), indicate whether it is a held-for-trading, available-for-sale, or held-to-maturity security.

rubymarten702

Glacier Products Inc. is a wholesaler of rock climbing gear. The company began operations on January 1, 2016. The following transactions relate to securities acquired by Glacier Products Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10:

2016
Jan.	18	Purchased 9,000 shares of Malmo Inc. as an available-for-sale investment at $40 per share, including the brokerage commission.
July	22	A cash dividend of $3.00 per share was received on the Malmo stock.
Oct.	5	Sold 500 shares of Malmo Inc. stock at $58.00 per share, less a brokerage commission of $100.
Dec.	18	Received a regular cash dividend of $3.00 per share on Malmo Inc. stock.
	31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $36.00 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.

Record these transactions on page 11:

2017
Jan.	25	Purchased an influential interest in Helsi Co. for $800,000 by purchasing 75,000 shares directly from the estate of the founder of Helsi. There are 250,000 shares of Helsi Co. stock outstanding.
July	16	Received a cash dividend of $3.00 per share on Malmo Inc. stock.
Dec.	16	Received a cash dividend of $3.00 per share plus an extra dividend of $0.20 per share on Malmo Inc. stock.
	31	Received $38,000 of cash dividends on Helsi Co. stock. Helsi Co. reported net income of $170,000 in 2017. Glacier Products Inc. uses the equity method of accounting for its investment in Helsi Co.
	31	Malmo Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $44 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $36 to $44 per share.

	Required:
A.	Journalize the entries to record the preceding transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
B.	Prepare the investment-related asset and stockholdersâ equity balance sheet presentation for Glacier Products Inc. on December 31, 2017, assuming the Retained Earnings balance on December 31, 2017, is $700,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. âLessâ or âPlusâ will automatically appear if it is required. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

CHART OF ACCOUNTS

Glacier Products Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Malmo Inc.
163	Investment in Helsi Co. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Helsi Co.
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Helsi Co.
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Amount Descriptions
Available-for-sale investments (at cost)
Available-for-sale investments (at fair value)
Net income
Net loss
Other comprehensive income (loss)
Other income (loss)
Trading investments (at cost)
Trading investments (at fair value)

Journalize the entries to record these transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

PAGE 10PAGE 11

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11

Prepare the investment-related asset and stockholdersâ equity balance sheet presentation for Glacier Products Inc. on December 31, 2017, assuming the Retained Earnings balance on December 31, 2017, is $700,000. Refer to the Chart of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. âLessâ or âPlusâ will automatically appear if it is required. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

GLACIER PRODUCTS, INC.

Balance Sheet (selected items)

December 31, 2017

1	Current assets:
2
3
4
5
6	Investments:
7
8
9	Stockholdersâ equity:
10
11

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ACG 2021 Chapter 5: Short term investment and receivable

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