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CPA FAR Marketable Securities and Investments
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CPA FAR marketable securities and investments are classified by management intent into Trading (fair value, earnings), Available-for-Sale (AFS) (fair value, OCI), or Held-to-Maturity (HTM) (amortized cost).  Equity investments often use the fair value method or equity method (20-50% ownership), with unrealized gains/losses for equity securities usually affecting earnings.  Marketable Debt & Equity Securities (ASC 320 & 321) Investments are measured at fair value on the balance sheet, with changes in value reported differently based on classification:  Trading Securities: Bought for... Show more
CPA FAR Marketable Securities and Investments
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13 Questions

1. With regard to marketable securities held as available for sale, which of the following are reported in comprehensive income?
I. Unrealized temporary losses
II. Unrealized losses considered other than temporary
III. Unrealized gains
2. Assume in Year 2 that the value of the security has not changed, but Azur Corp. now considers the drop to be permanent. What should be the effects of the determination that the decline was other than temporary on Azur’s Year 2 net available-for-sale assets and net income?
3. On January 1 of the current year, Fords Co. paid $800,000 to purchase two-year, 7%, $1,000,000 face value bonds that were issued by another publicly traded corporation. Fords Co. plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,030,000. At what amount should Fords report the bonds in its balance sheet at the end of the current year?
4. Rochelle Corp. acquired 40% of Clark Inc.’s voting common stock on January 2, Year 13, for $400,000. The carrying amount of Clark’s net assets at the purchase date totaled $900,000. Fair values equaled carrying amounts for all items except equipment, for which fair values exceeded carrying amounts by $100,000. The equipment has a 5-year life. During Year 13, Clark reported net income of $150,000. What amount of income from this investment should Rochelle Corp. report in its Year 13 income statement?
5. On January 2, Year 5, Henry Corp. purchased 10% of Einhorn, Inc.’s outstanding common shares for $400,000. Henry is the largest single shareholder in Einhorn, and Henry’s officers represent a majority of Einhorn, Inc.’s board of directors. During Year 5, Einhorn reported net income of $500,000 and paid dividends of $150,000. What amount should Henry report as investment in Einhorn in its December 31, Year 5, balance sheet?
6. Tilly Company has provided the following information related to its investments in marketable equity securities: Based on the information provided, what amount should Tilley report as unrealized holding gain in its Year 2 income statement?
7. A marketable debt security is transferred from available-for-sale to held-to-maturity securities. At the transfer date, the security’s carrying amount exceeds its market value. What amount is used at the transfer date to record the security in the held-to-maturity portfolio?
8. Under US generally accepted accounting principles (GAAP), investment securities should be classified into categories based on the intent of the purchaser. Which of the following is one of the acceptable classifications?
I. Available for sale
II. Mark to market
III. Trading
IV. Held to maturity
9. According to US GAAP, both debt and equity securities may be classified as:
I. available for sale
II. trading
III. held to maturity
10. Woodley Inc. became a 4% owner of Jensen Inc. by purchasing 5,000 shares of Jensen Inc.’s stock on March 1, Year 13. Woodley Inc. received a stock dividend of 1,000 shares on September 1, Year 13, when the market value of Jensen Inc. was $20 per share. Jensen Inc. paid a cash dividend of $3 per share on November 1, Year 13, to shareholders of record on October 1, Year 13. In its Year 13 income statement, what amount would Woodley Inc. report as dividend income?
11. What should be the effect on Azur Corp.’s financial statements at December 31, Year 1?
12. Koontz, Inc. purchased 15% of Lamme Co.’s 50,000 outstanding shares of common stock on January 2, Year 5 for $100,000. On December 31, Year 5, Koontz purchased an additional 10,000 shares of Lamme for $175,000. Lamme reported earnings of $80,000 for Year 5. There was no goodwill as a result of either acquisition, and Lamme had not issued any additional stock during Year 5. There was no unrealized holding gain or loss reported in other comprehensive income for this investment. What amount should Koontz report in its December 31, Year 5 balance sheet as investment in Lamme?
13. Trixie Corp. had the following items in the current year:
Which of the following amounts would the statement of comprehensive income report as other comprehensive income or loss?,$15

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