上一主题:Reading 21- LOS A ~ Q6-10
无下一主题
返回列表 发帖

答案和详解如下:

LOS a: Distinguish whether a debt security or equity security should be classified as held-to-maturity, available-for-sale, or as a trading security.


1.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

1

$80

$75

$85

2

$20

$30

$35

3

$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 CORRECT?

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

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

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


The correct answer was
C)

SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires a company to classify its securities into categories based upon the company's intent relative to the eventual disposition of the securities.

One of these categories, held-to-maturity securities, is composed of debt securities which a company has the positive intent and ability to hold to maturity. These securities are carried at the cost on the balance sheet and coupon receipts are considered income.

 

2.Which of the following statements regarding the income statement and balance sheet treatment of securities classified as available-for-sale is CORRECT?

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

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

 

The correct answer was A)

SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires a company to classify its securities into categories based upon the company's intent relative to the eventual disposition of the securities.

One of these categories, available-for-sale securities, may be sold to address the liquidity and other needs of a company. Debt and equity securities classified as available-for-sale are carried at fair market value on the balance sheet with unrealized gains and losses excluded from income and reported as a separate component of shareholders' equity.

 

3.Which of the following statements regarding the income statement and balance sheet treatment of securities classified as trading securities is CORRECT?

They are carried at:

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

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

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

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

 

The correct answer was C)

SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires a company to classify its securities into categories based upon the company's intent relative to the eventual disposition of the securities.

One of these categories, trading securities, is for debt and equity securities acquired for the purpose of selling them in the near term. These securities are measured at fair market value and are listed as current assets on the balance sheet. Unrealized and realized gains and losses are reported in income.

4.Using the provisions of SFAS 115, if the securities are classified as trading securities the balance sheet value for the portfolio at year-end 2005 is:

A)  $12,500, and we record an unrealized loss of $1,500.

B)  $12,500, and we record no gains or losses.

C)  $14,000, and we record no gains or losses.

D)  $15,000, and we record no gains or losses.

 

The correct answer was A)

The original portfolio cost was: $8,000 + $2,000 + $4,000 = $14,000

In 2005: $7,500 + $3,000 + $2,000 = $12,500

Thus we write the portfolio down by $1,500 and take an unrealized loss.

 

5.Using the provisions of SFAS 115, if the securities are classified as trading securities the balance sheet value for the portfolio at year-end 2006 is:

A)  $14,000, and we record an unrealized gain of $2,500.

B)  $14,000, and we record no gains or losses.

C)  $16,500, and we record an unrealized gain of $4,000.

D)  $16,500, and we record an unrealized gain of $2,500.

 

The correct answer was C)

The original portfolio cost was: $8,000 + $2,000 + $4,000 = $14,000

In 2005 the value of the portfolio was: $7,500 + $3,000 + $2,000 = $12,500

In 2006 the value of the portfolio was: $8,500 + $3,500 + $4,500 = $16,500

We write the balance sheet value up to current value and recognize an unrealized gain of $4,000 from 2001.

TOP

返回列表
上一主题:Reading 21- LOS A ~ Q6-10
无下一主题