Reading 21:Intercorporate Investments LOS a ～ Q8-10

accounting, black, evening, knowledge, concerned

Q8. In one of your evening MBA courses, you are about to take an accounting exam and are concerned about your knowledge of

accounting for marketable equity securities. You have the following data from a previous take-home assignment:

Security

Cost

2005 Value

2006 Value

$80

$75

$85

$20

$30

$35

$40

$20

$45

You are assumed to own 100 shares of each firm. Under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," the securities will be classified as either held-to-maturity, available-for-sale, or trading securities.

Which of the following statements regarding the income statement and balance sheet treatment of securities classified as held-to-maturity is most accurate? They are carried at:

A) fair market value on the balance sheet with unrealized gains and losses excluded from income and reported as a separate component of shareholders' equity.

B) cost on the balance sheet and coupon receipts are considered income.

C) cost on the balance sheet with unrealized gains and losses reported in income.

Q9. Which of the following statements regarding the income statement and balance sheet treatment of securities classified as

available-for-sale is most accurate? They are carried at:

A) cost on the balance sheet and coupon receipts are considered income.

B) fair market value on the balance sheet with unrealized gains and losses excluded from income and reported as a separate component of shareholders' equity.

C) fair market value on the balance sheet with unrealized gains and losses reported in income.

Q10. Which of the following statements regarding the income statement and balance sheet treatment of securities classified as

trading securities is most accurate? They are carried at:

A) fair market value on the balance sheet with unrealized gains and losses reported in income.

B) cost on the balance sheet with unrealized gains and losses reported in income.

C) fair market value on the balance sheet with unrealized gains and losses excluded from income and reported as separate component of shareholders' equity.