Investment Paper 1

1

Nichols Enterprises has an investment in 25,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shares are publicly traded on the New York Stock Exchange, and the Wall Street Journal quotes a price for those shares of $10/share, but Nichols believes the market has not appreciated the full value of the Elliott shares and that a more accurate price is $12/share. Nichols should carry the Elliott investment on its balance sheet at:






2

Anthers Inc. bought the following portfolio of trading securities near the end of 2011. (FV = Fair Value)
SecA: Cost:80k FV(12/31/11): 84k
SecB: Cost:60k FV(12/31/11): 54k
SecC: Cost:22k FV(12/31/11): 22k
What amount will be reported in the balance sheet for this portfolio at December 31, 2011, and how will it be classified?






3

On January 1, 2011, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. These securities were classified as trading securities. The ownership in Papa Company is 10%. Papa reported net income of $52,000 for the year ended December 31, 2011. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2011?






4

Goofy Inc. bought 15,000 shares of Crazy Co.’s stock for $150,000 on May 5, 2010, and classified the stock as available for sale. The market value of the stock declined to $118,000 by December 31, 2010. Goofy reclassified this investment as trading securities in December of 2011 when the market value had risen to $125,000. What effect on 2011 income should be reported by Goofy for the Crazy Co. shares?






5

Hobson Company bought the securities listed below during 2010. These securities were classified as trading securities. In its December 31, 2010, income statement Hobson reported a net unrealized loss of $13,000 on these securities. Pertinent data at the end of December, 2011 are as follows: (FV = Fair Value)
SecX: Cost:380k FV(12/31/11): 352k
SecY: Cost:180k FV(12/31/11): 160k
SecZ: Cost:420k FV(12/31/11): 414k
What amount of loss on these securities should Hobson include in its income statement for the year ended December 31, 2011?






6

What is the effect on a company’s cash flows and reported profit from accounting for an investment as a trading security versus as an available-for-sale security?






7

All investments in debt and equity securities that don’t fit the definitions of the other reporting categories are classified as:






8

Investments in securities available for sale are reported at:






9

All investment securities are initially recorded at:






10

GAAP regarding accounting for certain debt and equity securities generally will apply to an investment when the percentage of ownership of another company is:






Result

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