AT&T; 5:34 PM Quiz 4 Quiz 4-1.docx b) What dollar value should the company recog
ID: 2575196 • Letter: A
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AT&T; 5:34 PM Quiz 4 Quiz 4-1.docx b) What dollar value should the company recognize on its 12/31/04 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, 2004 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. 12/3103 Accumulated Other Comprehensive Income 2004 Other Comprehensive Income 12/31/04 Accumulated Other Comprehensive Income 2004 Unrealized holding gains or losses reported in Net Income 2004 Comprehensive Income (from Trading and AFS e) On February 27, 2005, the company sold its entire investment in Y Company stock for $68,000. Record the transaction for the sale of investment. Courses Calendar To Do Notifications InboxExplanation / Answer
As per US GAAP, trading securities and AFS securitires should be recognized at Fair Market Value.
a) Trading Securities should be recognized at FMV i.e $60,000(20,000+15,000+25,000) on 12/31/04.
Codification Topic - 320 is applicable for Accounting for Investments in Equity and Debt. Trading Securities should be recognized at FMV because these are held for regular sale and purchase hence intended for sale in the short term. Also the gain or loss arised from these securities should be transferred to Profit & Loss A/c.
b) AFS securities should be recognized at FMV because these are also intended for sale in the near future. AFS are those securities which are not held for trading or held to maturity.
hence, the amount of recognition for AFS securities will be - $250,000+60,000 = $310,000 on 12/31/04
c) Journal Entries :
For Trading Securities :
1. When purchased during the year 2004, these were recognized at cost. The entry was:
Investments in Company A A/c Dr. 25,000
Investments in Company B A/c Dr. 13,000
Investments in Company C A/c Dr. 35,000
To Bank A/c 73,000
( For Investments Purchased)
2. On 12/31/04 :
Investments in Company B A/c Dr. 2,000 (15,000-13,000)
Profit & Loss A/c Dr. 13,000
To Investments in Company A A/c 5,000 (25,000-20,000)
To Investments in Company C A/c 10,000 (35,000-25,000)
( For Investments recognized at FMV at the year end and difference amount has been charged to P&L a/c)
For AFS Securitires:
1. On 12/31/04 :
The Value of Investments in X and Y as on 12/31/03 were 230,000 and 50,000 respectively. The value as on 12/31/04 are 250,000 and 60,000 respectively. Hence the unrealized gain on X will be 250,000-230,000 = 20,000 and on Y will be 60,000-50,000 = 10,000. The entry will be :
Investment in X A/c Dr. 20,000
Investment in Y A/c Dr. 10,000
To Other Comprehensive Income A/c** 30,000
** As per US GAAP, the gain on AFS securities should be transferred to Other Comprehensive Income (OCI) rather than earnings.
3.
a)
Other Comprehensive Income (OCI) as on 12/31/03:
Cost
FMV on 12/31/03
Gain/(Loss)
Investment in X
210,000
230,000
20,000
Investment in Y
80,000
50,000
(30,000)
Balance of OCI on 12/31/03
(10,000)
b) OCI in 2004 : Gain on Investment X (250,000-230,000) 20,000
Gain on Investment Y (60,000-50,000) 10,000
Total 30,000
c)
OCI as on 12/31/04 :
Balance as on 12/31/03
(10,000)
Unrealized gain on Investment in X (250,000-230,000)
20,000
Unrealized gain on Investment in Y (60,000-50,000)
10,000
Balance of OCI on 12/31/04
20,000
d) 2004 reported Unrealized gain or loss in Net Income :
Loss on investment A (20,000-25,000) (5,000)
Gain on Investment B (15,000-13,000) 2,000
Loss on Investment C (25,000-35,000) (10,000)
Total URL (13,000)
e) 2004 Total Income on Trading and AFS Securitires :
Total Loss on Trading Sec. (13,000)
Total Gain on AFS Sec. 30,000
Total gain 17,000
Please let me know if you have any doubts
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Thanks
a)
Other Comprehensive Income (OCI) as on 12/31/03:
Cost
FMV on 12/31/03
Gain/(Loss)
Investment in X
210,000
230,000
20,000
Investment in Y
80,000
50,000
(30,000)
Balance of OCI on 12/31/03
(10,000)
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