Now assume included in the noncurrent equity securities total was an investment

Question

Now assume included in the noncurrent equity securities total was an investment in Boeing that the company purchased in 2007 for $101.25 per share. The company held 5,000 shares at the beginning and end of fiscal year 2010.

Record the necessary journal entry to reflect the change in value of this investment for the year ended September 26, 2010. Use the valuation technique suggested above in b. to determine the amount to record in this journal entry. Identify the elements of j/e accounts used (i.e., Asset, Liability, OCI, etc). Hint: you will need to conduct some research here. Briefly explain how your answer would be different if QUALCOM had classified the equity security as “Trading.”

Explanation / Answer

Equity Method : Companies use Fair Value option for investments that otherwise follow the equity method of accounting Example if at the end of 2010,the value of shares falls to below $101.25, the following journal entry would be passed Unrealized Holding Gain or Loss- Income Investments in Boeing and if the value of the stock rises above 101.25, J/E would be: Investments in Boeing Unrealized Holding Gain or Loss- Income Now for the second part of the question: If the securities had been classified as Trading Securities For Gain : Securities Fair Value adjustment (Trading Securities ) Unrealized Holding Gain or Loss - Equity For Loss : Unrealized Holding Gain or Loss - Equity Securities Fair Value adjustment (Trading Securities )

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