INVESTMENT
Accounting for Trading and Available-for-sale Securities y
Theories
1. Trading Securities and Available for Sale securities are recorded initially at cost regardless if it is investment in equity securities or investment in debt securities. Which of the following is correct in acquiring securities? a. debit Trading Securities plus transaction cost; credit Cash b. debit Available for Sale Securities, debit Expense Account; credit Cash c. debit Available for Sale Securities; credit Land, credit Gain on Sale d. debit Trading Securities, debit Expense Account; credit Cash 2. The company can also acquire different securities at a time through Lump-sum basis. We can allocate the cost of these securities by using the __________? a. relative expenses of the securities b. gains or losses of the securities c. relative fair market value of the securities d. relative maturity value of the securities 3. Trading securities and available for sale securities can also be acquired through exchange of noncash property. Which statement should be considered? a. It should be taken up at fair market value of either of the consideration given or consideration received whichever is more clearly determinable. b. It should be taken up at maturity value of either of the consideration given or consideration received whichever is more clearly determinable. c. It should be taken up at fair market value of either of the consideration given or consideration received whichever is more clearly indeterminable. d. It should be taken up at fair market value of the consideration given only which is clearly determined in the market. 4. Any change in fair market will give rise to gains or losses of either Trading securities or Available for sale securities whether it is an equity or debt security. These gains or losses will be presented in I. Trading Securities: debit balance - other operating expense or losses; credit balance ² other operating income. II. Available for sale securities as part of Shareholder·s Equity: an addition, if credit balance; a deduction, if debit balance a. I only
b. I and II
c. II only
d. neither I and II
5. Which statement is correct? a. An entity may reclassify Trading Securities whenever they want (PAS 39 paragraph 20).
b. An entity may or may not reclassify Trading Securities whenever they want (PAS 39 paragraph 20). c. An entity shall not reclassify Trading Securities (PAS 39 paragraph 20) d. An entity may only reclassify their Trading Securities when they are bankrupt (PAS 39 paragraph 20).
Investments Problem: 1.
On
December 2008, Scott Company had investment in Trad ing Securities as follows. Cost Ichi Company 2,000,000 Ni Company 4,500,000 San Company 2,100,000 8,600,000
Market Value 2,300,000 4,800,000 2,500,000 9,600,000
Scott December 31, 2008 balance sheet should be report the trading securities at?
2.
On
January 1 2008, Yong Company purchased marketable equity securities to be held as Trading for 8,500,000. The company also paid commission to be stockbroker in the amount of 200,000 no securities were sold during 2008. The market value of the equity securities on December 31 2008 is 9,200,000 What amount of unrealized gain on these securities should be reported in the 20 08 income statement?
3. The following data pertaining to the equ ity investment held by Damortis company classified as ³available for sale´ Cost Market value Dec. 31, 2007 Dec. 31, 2007
4,500,000 3,100,000 4,900,000
What amount should be reported as unrealized gain in December 31, 2008 shareholders equity. 4. Go Company began operation on January 1 2008, the following information pertains to the company¶s December 31 2008 portfolio of equity securities.
Aggregate Cost Aggregate market value Lower of cost or market
Trading 6,000,000 5,600,000
Available for sale 8,000,000 7,400,000
Value applied to each security 5,100,000
7,200,000
The market declines are judge to be ³other than temporary´ what amount should report as total loss on these securities in its 2007 income.
go
5. Data regarding Ju Company¶s Available for sale S ecurities follow:
December 31, 2007 December 31, 2008
Cost 5,000,000 5,000,000
Market 5,200,000 5,900,000
Difference between the cost and market value are considered temporary. The Dece mber 31, 2008 statement of shareholders equity should report unrealized gain on these securities at?
Theories
|INVESTMENT S} 1.
It is any contract that gives rise to both a financial asset of one entity and a financial liability or an equity instrument of another entity a.
Financial
instrument
b.
Equity instrument
c.
Debt instrument
d.
Derivative instrument
ANSWE: A 2.
A financial asset is any asset that is (choose incorrect answer) a.
Cash
b.
Contractual
c.
A contractual right to exchange financial instruments under conditions that are potentially
right to receive cash or another financial asset from another entity
unfavorable d. An equity of another entity ANSWE: C 3.
It is any contract that evidences residual interest in the assets of an entity after deducting all of its liabilities a.
Equity instrument
b.
Debt instrument
c.
Loan
d.
Loans
and receivable receivable
Answer: A 4.
Financial
assets include all of the following except
a.
Prepaid
expenses
b.
Cash
c.
Trade
accounts receivable
d.
Loans
receivable
on bank
ANSWER: A 5.
A financial liability is any liability that is a contractual obligation I.
To
deliver cash or other financial asset to another entity
II.
To
exchange financial instruments with another entity under conditions that are
potentially unfavorable a.
I only
b. II only c.
Both
I and II
d. Neither I and II ANSWER: C
1. These are assets held by an enterprise for the accretion of wealth, for capital appreciation or for other benefits accruing to the investing enterprise a. Investments b. Inventories c. Property, plant and equipment d. Current assets 2. When a. b. c.
current investments are carried at market value Unrealized gains or losses are not recognized Unrealized gains and losses are recognized and included in equity Unrealized gains and losses are recognized and included in determination of income d. Unrealized gains are included in determination of income
3. Long-term investments are a. Acquired primarily for accretion of wealth b. Readily realizable c. Classified as current assets d. Intended to be held for more than one year 4. Specifically, these securities represent ownership shares such as common stock, preferred stock and other capital stock a. Equity securities b. Debt securities c. Marketable securities d. Current investments
5.
It is the date on which the stock and transfer book of the corporation is closed for registration. Only those stockholders registered as of this date are entitled to receive dividends a. Date of declaration b. Date of record c. Date of payment d. Date of mailing
