a)What dollar value should the company recognize on its 12/31/2016 balance sheet

Question

a)What dollar value should the company recognize on its 12/31/2016 balance sheet for the Trading Securities portfolio? Name the measurement attribute required by GAAP, and explain why this measurement attribute is relevant for Trading Securities.

b)What dollar value should the company recognize on its 12/31/2016 balance sheet for the Available for Sale Securities portfolio? Name the measurement attribute required by GAAP, and explain why this measurement attribute is relevant for Available for Sale Securities.

c)Prepare the journal entries that FKG, Inc. would make for the year ended December 31, 2016 related to these Trading and Available for Sale portfolios. Ignore income taxes.

d)Complete the following items for FKG, Inc. Indicate any debit balances or losses with parentheses.

12/31/2015 Accumulated Other Comprehensive Income ______________________

2016 Other Comprehensive Income ____________________

12/31/2016 Accumulated Other Comprehensive Income ______________________________

2016 Unrealized holding gains or losses reported in Net Income ____________________

Comprehensive Income (from Trading and AFS investments)____________________

1. FKG Inc. carries the following investment in debt securities on its books at December 31, 2015 and December 31, 2016. All available-for-sale securities were purchased during 2015, and all trading securities were purchased during 2016. There were no sales of securities from either portfolio during 2015 and 2016. Ignore income taxes. Trading Securities (classified as current assets): Company Cost A Company $25,000 B Company $13,000 C Company $35,000 Fair Market Value Dec. 31,2015 N/A N/A N/A Fair Market Value Dec. 31,2016 $20,000 $15,000 $25,000 Available for Sale Securities (classified as non-current assets): Fair Market Value Fair Market Value Dec. 31, 2015 Cost X Company $210,000 $230,000 Dec. 31, 2016 $250,000 $ 80,000 Company Y Company 50,000 $ 60,000

Explanation / Answer

Requirement a The dollar amount the company should recognize on its 12/13/2016 Balance sheet for trading securities portfolio is $60000 Company Fair value A Company 20000 B Company 15000 C Company 25000 Total Fair value 60000 This is known as Fair value adjustment as required by GAAP. This is relevent as company is planning to sell these securities at some future date within a year. This generally classifed under current asset in balance sheet. Requirement b The dollar amount the company should recognize on its 12/13/2016 Balance sheet for available for sale securities portfolio is $330000 Company Fair Value X Company 250000 Y Company 80000 Total Fair value 330000 This is known as Fair value adjustment as required by GAAP. This is relevent as company is planning to sell these securities as and when they want to. This generally classified under current as well as non-current asset in balance sheet. Requirement c Journal entries Date General Journal Debit Credit December Investment in trading securities 73000 Cash 73000 To record the purchase of securities December 31, 2016 Unrealized Holding gain/loss 13000 Should be reported as expense in Income statement Fair Value adjustment-Trading 13000 Should be deducted from Investment in trading securities To record the unrealized hodling gain/loss on trading securities December 31, 2016 Fair Value adjustment-Available for sale 30000 Should be added to Investment in available for sale securities Unrealized holding gain/loss 30000 Should be shown as gain under Other Comprehensive Income Statement To record the unrealized holding gain/loss on AFS securities Requirement d Date Items for FKG Amount 12/31/2015 Accumulated other comprehensvie Income 30000 2016 Other comprehensive Income 30000 12/31/2016 Accumulated other comprehensvie Income 60000 2016 Unrealized holding gains or losses reported in Net Income -13000 2016 Comprehensive income( from trading and AFS Investment) 17000 Gain on AFS - Loss on Trading investment

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