LOS c: Calculate and analyze the mark-to-market investment return on a marketable securities portfolio under SFAS 115.

1.Ericorp Trading must mark to market its trading portfolio on a regular basis. Since it trades in small cap stocks, it does not receive dividends on its portfolio. Ericorp recorded a positive market value adjustment in the amount of $5,000 and recognized a realized loss of $2,000 for 2007. It received $100 in interest income during the year.

The mark-to-market investment return for 2007 is:

A)  $3,000.

B)  $3,100.

C)  $5,000.

D)  $5,100.

2.Consider the information in the table below for the Walsh Family Trust.

Which of the following is closest to the mark-to-market investment return on Walsh Family Trust in 2005?

A)  $2,768.

B)  $1,868.

C)  $3,713.

D)  $3,825.

3.Consider the information in the table below for the portfolio of Jeremiah Hendrix.

Which of the following is closest to the mark-to-market investment return on Hendrix’s portfolio during 2002?

A)  $4,613.

B)  $3,113.

C)  $6,188.

D)  $6,375.

4.Platinum Investments had the following information:

                                            2002                 2001 

§                                                       Investment securities (at FMV) $101,000      $95,000 

§                                                        Investment securities (at Cost) $97,000 $75,000

The change in the mark-to-market adjustment for 2002, assuming no realized gains and losses, dividends or interest income is:

A)  +$4,000.

B)  –$16,000.

C)  +$6,000.

D)  +$24,000.

5.General Property & Casualty (GPC) reported the following information related to its investment portfolio. For each classification the cost and market values (MV) are given.

What is the total market value adjustment (MVA) for 2006 and 2007 respectively?

A)  20 and 67.

B)  61 and 61.

C)  (11) and 20.

D)  35 and 74.

答案和详解如下：

LOS c: Calculate and analyze the mark-to-market investment return on a marketable securities portfolio under SFAS 115.

1.Ericorp Trading must mark to market its trading portfolio on a regular basis. Since it trades in small cap stocks, it does not receive dividends on its portfolio. Ericorp recorded a positive market value adjustment in the amount of $5,000 and recognized a realized loss of $2,000 for 2007. It received $100 in interest income during the year.

The mark-to-market investment return for 2007 is:

A)  $3,000.

B)  $3,100.

C)  $5,000.

D)  $5,100.

The correct answer was B)

The market value adjustment = 5,000

Plus: loss of –2,000

Plus: interest income of 100

= $3,100

2.Consider the information in the table below for the Walsh Family Trust.

Which of the following is closest to the mark-to-market investment return on Walsh Family Trust in 2005?

A)  $2,768.

B)  $1,868.

C)  $3,713.

D)  $3,825.

The correct answer was D)

Step 1. Calculate the t-period market value adjustments (MVA_t) as follows:

MVA_t = FMV_t − Cost_t

Where:
FMV_t = fair market value of investment portfolio at the end of period t.
Cost_t = cost of investment portfolio at the end of period t.

Step 2. Compute the mark-to-market investment return.

Mark-to-market investment return = MVA_t – MVA_t-1 + INT_t + DIV_t + RG_t

Where:
MVA_t = the market value adjustment for period t.
INT_t = interest income receive during period t.
DIV_t = dividends received during period t.
RG_t = realized gain (loss) during period t.

The mark-to-market return for the Walsh Family Trust is calculated as follows:

MVA₂₀₀₅ = FMV₂₀₀₅ – Cost₂₀₀₅ = $57,600 − $54,300= $3,300
MVA₂₀₀₄ = FMV₂₀₀₄ – Cost₂₀₀₄ = $28,650 − $26,775 = $1,875

3.Consider the information in the table below for the portfolio of Jeremiah Hendrix.

Which of the following is closest to the mark-to-market investment return on Hendrix’s portfolio during 2002?

A)  $4,613.

B)  $3,113.

C)  $6,188.

D)  $6,375.

The correct answer was D)

Step 1. Calculate the t-period market value adjustments (MVA_t) as follows:

MVA_t = FMV_t − Cost_t

Where:
FMV_t = fair market value of investment portfolio at the end of period t.
Cost_t = cost of investment portfolio at the end of period t.

Step 2. Compute the mark-to-market investment return.

Mark-to-market investment return = MVA_t – MVA_t-1 + INT_t + DIV_t + RG_t

Where:
MVA_t = the market value adjustment for period t.
INT_t = interest income receive during period t.
DIV_t = dividends received during period t.
RG_t = realized gain (loss) during period t.

The mark-to-market return for the Hendrix portfolio is calculated as follows:

MVA₂₀₀₂ = FMV₂₀₀₂ – Cost₂₀₀₂ = $96,000 − $90,500 = $5,500
MVA₂₀₀₁ = FMV₂₀₀₁ – Cost₂₀₀₁ = $47,750 − $44,625 = $3,125

4.Platinum Investments had the following information:

                                            2002                 2001 

§                                                       Investment securities (at FMV) $101,000      $95,000 

§                                                        Investment securities (at Cost) $97,000 $75,000

The change in the mark-to-market adjustment for 2002, assuming no realized gains and losses, dividends or interest income is:

A)  +$4,000.

B)  –$16,000.

C)  +$6,000.

D)  +$24,000.

The correct answer was B)

2002 FMV: 101,000 less 2002 Cost: 97,000 = 4,000

2001 FMV: 95,000 less 2001 Cost: 75,000 = 20,000

The difference is the change in MVA = 4,000 – 20,000 = –16,000

5.General Property & Casualty (GPC) reported the following information related to its investment portfolio. For each classification the cost and market values (MV) are given.

What is the total market value adjustment (MVA) for 2006 and 2007 respectively?

A)  20 and 67.

B)  61 and 61.

C)  (11) and 20.

D)  35 and 74.

The correct answer was D)

The total market value adjustment for 2006 and 2007 are 35 and 74, respectively. The MVA is the difference between the market value and the cost.