上一主题:Reading 21- LOS B ~ Q6-10
下一主题:Reading 21- LOS A ~ Q11-16
返回列表 发帖

Reading 21- LOS B ~ Q1-5

LOS b: Calculate and analyze the effect of marketable securities classification on the financial statements and financial ratios under SFAS 115.


1.Assume Company P, a U.S. company, buys 1,000 shares of Company A for $80 per share. During the year, Company A has earnings of $6 per share and pays dividends of $4 per share, and at year-end the share price is $75.

At year-end, Company P will carry this investment as:

 

If no public market

If trading security

If available-for-sale security

 

A)                                         $75,000                           $75,000       $75,000

B)                                         $80,000                           $75,000       $75,000

C)                                         $75,000                           $80,000       $75,000

D)                                         $80,000                           $75,000       $80,000


2.Company P will report investment income on its income statement as:

 

If no public market

If trading security

If available-for-sale security

 

A)                                         $4,000                             -$1,000 $4,000

B)                                         $4,000                             $4,000  $4,000

C)                                         $6,000                             $9,000  $9,000

D)                                         $4,000                             $4,000  -$1,000

 

3.On January 9, 2006, Company X paid $2,000,000 for 100,000 shares of stock in Company S. Originally the company intended on holding the securities for the foreseeable future. As of December 31, the stocks were valued at $2,200,000. In 2006, Company S had earnings per share of $0.90 and paid dividends per share of $0.20. In late December 2006, the company decided to place the securities in their active marketable securities portfolio.

What is the impact of this change in status on the value of the assets of Company X?

A)  $200,000.

B)  $0.

C)  $170,000.

D)  $70,000.

4.What is the impact of this change in status on the income and the stockholders' equity of Company X?

A)  Stockholders' equity will rise by $200,000, but income will not change.

B)  Income and stockholder's equity will rise by $200,000.

C)  Income and stockholder's equity will not change.

D)  Income will rise by $200,000, but stockholders' equity will not change.

5.Pamelan Portfolios purchased 100,000 shares in Delta Corporation at a price of $10 per share on January 2, 2000.  Assume that Pamelan follows U.S. generally accepted accounting principles (GAAP) and initially accounts for its trading investments at lower of cost or market in 2000.  Delta is a domestic U.S. Corporation with all if its operations and sales in the U.S.  Delta had the following subsequent share prices:

§   12/31/00   $8 per share

§   12/31/01    $5 per share

§   12/31/02   $10 per share

Delta Corporation experienced a fire in August 2001 that destroyed virtually all of its operations in the U.S.  Pamelan’s management believes that this has seriously impaired the value of its investment by $3 per share when Delta’s Stock had a market value of $8 per share prior to the fire.  Delta’s stock had halted trading for the remainder of the year.

If Pamelan were to account for its investment in Delta at the end of 2000, Pamelan would:

A)  write down its investment against its income statement as an extraordinary loss.

B)  write down its investment against the equity section of its balance sheet.

C)  leave its investment unchanged because it is carried at cost.

D)  write down its investment against its income statement as an ordinary loss.

答案和详解如下:

LOS b: Calculate and analyze the effect of marketable securities classification on the financial statements and financial ratios under SFAS 115.


1.Assume Company P, a U.S. company, buys 1,000 shares of Company A for $80 per share. During the year, Company A has earnings of $6 per share and pays dividends of $4 per share, and at year-end the share price is $75.

At year-end, Company P will carry this investment as:

 

If no public market

If trading security

If available-for-sale security

 

A)                                         $75,000                           $75,000       $75,000

B)                                         $80,000                           $75,000       $75,000

C)                                         $75,000                           $80,000       $75,000

D)                                         $80,000                           $75,000       $80,000

The correct answer was B)

If the shares have no public market, the cost method is used. Trading securities and available-for-sale securities are reported at year-end market value.

2.Company P will report investment income on its income statement as:

 

If no public market

If trading security

If available-for-sale security

 

A)                                         $4,000                             -$1,000 $4,000

B)                                         $4,000                             $4,000  $4,000

C)                                         $6,000                             $9,000  $9,000

D)                                         $4,000                             $4,000  -$1,000

The correct answer was A)

Only the dividends are reported on the income statement with either the cost or available-for-sale method. Unrealized losses are posted to the income statement under the trading classification. Hence, unrealized loss of $5,000 plus $4,000 in dividends = $1,000 loss.

 

3.On January 9, 2006, Company X paid $2,000,000 for 100,000 shares of stock in Company S. Originally the company intended on holding the securities for the foreseeable future. As of December 31, the stocks were valued at $2,200,000. In 2006, Company S had earnings per share of $0.90 and paid dividends per share of $0.20. In late December 2006, the company decided to place the securities in their active marketable securities portfolio.

What is the impact of this change in status on the value of the assets of Company X?

A)  $200,000.

B)  $0.

C)  $170,000.

D)  $70,000.


The correct answer was
B)

The stocks were classified as debt and equity securities available for sale, but now they will be classified as debt and equity trading securities. However, although it will affect net income, the change in status will not impact the reported value of the assets. According to SFAS 115, securities transferred from available-for-sale to trading securities are transferred at fair market value and unrealized gains or losses would be included in income.

 

4.What is the impact of this change in status on the income and the stockholders' equity of Company X?

A)  Stockholders' equity will rise by $200,000, but income will not change.

B)  Income and stockholder's equity will rise by $200,000.

C)  Income and stockholder's equity will not change.

D)  Income will rise by $200,000, but stockholders' equity will not change.


The correct answer was
D)

The stocks were classified as debt and equity securities available for sale, but now they will be classified as debt and equity trading securities. The gain would have been reported in the securities valuation account in the equity section and not on the income statement, but now will be reported as income.

 

5.Pamelan Portfolios purchased 100,000 shares in Delta Corporation at a price of $10 per share on January 2, 2000.  Assume that Pamelan follows U.S. generally accepted accounting principles (GAAP) and initially accounts for its trading investments at lower of cost or market in 2000.  Delta is a domestic U.S. Corporation with all if its operations and sales in the U.S.  Delta had the following subsequent share prices:

§   12/31/00   $8 per share

§   12/31/01    $5 per share

§   12/31/02   $10 per share

Delta Corporation experienced a fire in August 2001 that destroyed virtually all of its operations in the U.S.  Pamelan’s management believes that this has seriously impaired the value of its investment by $3 per share when Delta’s Stock had a market value of $8 per share prior to the fire.  Delta’s stock had halted trading for the remainder of the year.

If Pamelan were to account for its investment in Delta at the end of 2000, Pamelan would:

A)  write down its investment against its income statement as an extraordinary loss.

B)  write down its investment against the equity section of its balance sheet.

C)  leave its investment unchanged because it is carried at cost.

D)  write down its investment against its income statement as an ordinary loss.


The correct answer was
D)

Write downs are considered part of the normal course of business so they must be classified as an ordinary loss.

TOP

返回列表
上一主题:Reading 21- LOS B ~ Q6-10
下一主题:Reading 21- LOS A ~ Q11-16