MC Qu. 46 LO 12-03 Nichols Enterprises has an investment in... Nichols Enterpris
ID: 2500869 • Letter: M
Question
MC Qu. 46 LO 12-03 Nichols Enterprises has an investment in...
Nichols Enterprises has an investment in 31,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shares are publicly traded on the New York Stock Exchange, and the Wall Street Journal quotes a price for those shares of $15 a share, but Nichols believes the market has not appreciated the full value of the Elliott shares and that a more accurate price is $17 a share. Nichols should carry the Elliott investment on its balance sheet at:
rev: 11_26_2013_QC_40876
$465,000.
$527,000.
Either $465,000 or $527,000, as either are defensible valuations.
$496,000, the midpoint of Nichols's range of reasonably likely valuations of Elliott.
Nichols Enterprises has an investment in 31,000 shares of Elliott Electronics that Nichols accounts for as a security available for sale. Elliott shares are publicly traded on the New York Stock Exchange, and the Wall Street Journal quotes a price for those shares of $15 a share, but Nichols believes the market has not appreciated the full value of the Elliott shares and that a more accurate price is $17 a share. Nichols should carry the Elliott investment on its balance sheet at:
Explanation / Answer
As per the standard procedure of valuation of investments, the long term investments should be valued at cost and investments-available for sale should be valued at market value.
In this case, the investments are available for sale securities so Nicohol should record the investment at market value of $465,000 (31,000 shares*$15 per share).
Therefore, the correct option is $465,000.
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