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1. Sork Inc. has a portfolio of marketable securities classified as available-for-sale securities. At the end of the year, the fair values of the securities exceeded their costs. How should Sork report the unrealized gains on its portfolio of marketable securities in the statement of stockholders’ equity?

I. Only the cumulative amount of net gains are reported in the statement of stockholders’ equity.

II. Only current period changes in the value of the investment are reported in the statement of stockholders’ equity.

III. A correct journal entry to report unrealized gains would be an increase to the investment and an increase to other comprehensive income.

Multiple Choice

a. I and III only

b. II and III only

c. I only

d. III only

2. During 20X9, Alpha Co. purchased debt securities classified as trading securities. At the end of 20X9, the market value of Alpha’s investment in debt securities exceeded the amortized cost. Alpha should report the debt securities on its 20X9 balance sheet at

Multiple Choice

a. Amortized cost

b. Market value

c. Cost

d. Lower of cost or market

3. Misk Co. purchased the following securities during 20X7 to be classified as held-to-maturity securities, trading securities, or available-for-sale securities:

I. Debt securities bought and held for the purposes of reselling in the near future.

II. U.S. Treasury bonds that Misk intends and is able to hold to maturity.

III. Convertible preferred stock that Misk does not intend to sell in the near future.

Which of above securities purchased by Misk should be classified as available-for-sale securities?

Multiple Choice

a. I and II only

b. I and III only

c. III only

d. None of the above

4. Data regarding Rock Corp.’s available-for-sale securities follows:

Cost Market Value
December 31, 20X7 $ 80,000 $ 65,000
December 31, 20X8 $ 80,000 $ 90,000


Differences between cost and market values are considered temporary. Rock does not elect the fair value option of accounting for available-for-sale securities.

Rock’s accumulated other comprehensive income would be

Multiple Choice

a. $0

b. $10,000

c. $25,000

d. $15,000

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019
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Related questions

Dewey Corporation owns 30 percent of the common stock of Jimm Company, which it purchased at underlying book value on January 1, 20X5. Dewey reported a balance of $265,000 for its investment in Jimm Company on January 1, 20X5, and $298,000 at December 31, 20X5. During 20X5, Dewey and Jimm Company reported operating income of $347,000 and $77,000, respectively. Jimm received dividends from investments in marketable equity securities in the amount of $9,000 during 20X5. It also reported an increase of $16,000 in the market value of its portfolio of trading securities and an increase in the value of its portfolio of securities classified as available-for-sale. Jimm paid dividends of $27,000 in 20X5. Ignore income taxes in determining your solution.

Required:
a.

Assuming that Dewey uses the equity method in accounting for its investment in Jimm, compute the amount of income from Jimm recorded by Dewey in 20X5.

b.

Compute the amount reported by Jimm as other comprehensive income in 20X5.

c.

If all of Jimm’s other comprehensive income arose solely from its investment in available-for-sale securities purchased on March 10, 20X5, for $137,000, what was the market value of those securities at December 31, 20X5?

During 2017 the Lung Association received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law requires that capital gains or increases in value be added to the endowment principal. The income from the securities was to be restricted to research in pulmonary diseases. The following schedule indicates the value of the securities as of the date of receipt (labeled "cost"), the fair value at December 31, 2017, and the unrealized gains and losses of the year.

Endowment Portfolio as of December 31, 2017 (in thousands)

Cost Fair Value Unrealized Gain (Loss)

Northwest Industries $260 $275 $15

Campbell Corp. 317 304 (13)

St. Regis, Inc. 141 171 30

$718 $750 $32

1. Prepare a journal entry to record the unrealized net gain during the year. Be sure to indicate the type of fund+(unrestricted, temporarily restricted, or permanently restricted) in which the entry would be made. Assuming no other transactions and no other assets in the relevant funds, show how the investments would be reported on the hospital's year-end 2017 statement of financial position.

2. During 2018, the hospital sold Northwest Industries for $280. Prepare appropriate journal entries to record the sale. Credit the gain to the same account in which you credited the unrealized appreciation of 2017.

3. As of December 31, 2018, the market value of Campbell Corp. had increased to $320; that of St. Regis, Inc., to $180. Prepare a journal entry to record the unrealized gain during the year. Show how the association would report the investment portfolio on its December 31, 2018, statement of financial position. You may combine the cash and securities of each type of fund into a single account.

Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:

1

Name

Number of Shares

Total Cost

Total Fair Value

2

Tornado Inc.

830.00

$14,857.00

$16,185.00

3

Tsunami Corp.

1,230.00

31,488.00

34,809.00

4

Typhoon Corp.

2,170.00

44,268.00

43,834.00

5

Total

$90,613.00

$94,828.00

On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.

Required:

A. Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):
1. The adjustment of the available-for-sale security portfolio to fair value on December 31, 2016.
2. The June 12, 2017, purchase of Rogue Wave Inc. stock.
B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Chart of Accounts

CHART OF ACCOUNTS
Hurricane Inc.
General Ledger
ASSETS
110 Cash
111 Petty Cash
120 Accounts Receivable
121 Allowance for Doubtful Accounts
131 Notes Receivable
132 Interest Receivable
141 Merchandise Inventory
145 Office Supplies
146 Store Supplies
151 Prepaid Insurance
161 Investments-Rogue Wave Inc. Stock
165 Valuation Allowance for Trading Investments
166 Valuation Allowance for Available-for-Sale Investments
181 Land
191 Store Equipment
192 Accumulated Depreciation-Store Equipment
193 Office Equipment
194 Accumulated Depreciation-Office Equipment
LIABILITIES
210 Accounts Payable
221 Notes Payable
231 Interest Payable
241 Salaries Payable
251 Sales Tax Payable
EQUITY
311 Common Stock
312 Paid-In Capital in Excess of Par-Common Stock
321 Preferred Stock
322 Paid-In Capital in Excess of Par-Preferred Stock
331 Treasury Stock
332 Paid-In Capital from Sale of Treasury Stock
340 Retained Earnings
350 Unrealized Gain (Loss) on Available-for-Sale Investments
351 Cash Dividends
352 Stock Dividends
390 Income Summary
REVENUE
410 Sales
611 Interest Revenue
612 Dividend Revenue
621 Income of Rogue Wave Inc.
631 Gain on Sale of Investments
641 Unrealized Gain on Trading Investments
EXPENSES
511 Cost of Merchandise Sold
512 Bad Debt Expense
515 Credit Card Expense
516 Cash Short and Over
520 Salaries Expense
531 Advertising Expense
532 Delivery Expense
533 Repairs Expense
534 Selling Expenses
535 Rent Expense
536 Insurance Expense
537 Office Supplies Expense
538 Store Supplies Expense
561 Depreciation Expense-Store Equipment
562 Depreciation Expense-Office Equipment
590 Miscellaneous Expense
710 Interest Expense
721 Loss of Rogue Wave Inc.
731 Loss on Sale of Investments
741 Unrealized Loss on Trading Investments

Journal

Shaded cells have feedback.

A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.

How does grading work?

PAGE 10

JOURNAL

Score: 33/51

DATE DESCRIPTION POST. REF. DEBIT CREDIT

1

?

?

2

?

3

?

?

4

?

Points:

6.47 / 10

Feedback

Check My Work

1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.

2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.

Final Question

Shaded cells have feedback.

B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholders’ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to “cancel out” over time.

Points:

5 / 5

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