At the end of the first year of operations, Key Company had a current equity securities...

At the end of the first year of operations, Key Company had a current equity securities portfolio classified as available‐for‐sale securities with a cost of $500,000 and a fair value of $550,000. At the end of its second year of operations, Key had a current equity securities portfolio classified as available‐for‐sale securities with a cost of $525,000 and a fair value of $475,000. No securities were sold during the first year. One security with a cost of $80,000 and a fair value of $70,000 at the end of the first year was sold for $100,000 during the second year.

Required:

How should Key Company report the preceding facts in its balance sheets and income statements for both years? Discuss the rationale for your answer.

How would your answer differ if the security had been classified as trading securities?

Expert Solution

lass of Securities	Types of Securities	Disclosure on the Balance Sheet	Treatment of Temporary Changes of Value
Held to Maturity	Debt	Amortized cost	Not recognized
Available for Sale	Debt and Equity	Fair market value	Reported in stockholders’ equity
Trading	Debt and Equity	Fair market value	Reported on the income statement
Equity method	Equity	Historical cost adjusted for changes in the net assets of the investee	Not recognized

Balance Sheet

The balance sheet lists the marketable securities as an asset. Usually, the securities are stated at fair market value as of the date of the financial statements. Held to maturity, securities may be listed at cost, but this has become fairly uncommon.

Income Statement

The income statement may show the changes in the fair market value of investments as an income or loss line item, but only if the securities have been classified as held-for-trading securities.

Statement of Stockholders' Equity

If the securities are classified as available for sale, the statement of stockholders' equity should show the changes in fair market value of the investments as a separate component of stockholders' equity.

Statement of Cash Flows

The statement of cash flows may show the changes in fair market value of the investments as a reconciling item in the operating section of the statement. The investing section of the statement always shows the cash used to purchase securities or the cash received from the sale of securities.

Disclosures

Disclosures to the financial statements describe how the marketable securities have been classified. They also provide further detail as to what kinds of securities are owned by the company and what transactions may have taken place during the fiscal year

ekkarill92 answered 2 years ago

In the first year of operations, Acme Company had the following selected transactions in trading securities....

In the first year of operations, Acme Company had the following selected transactions in trading securities. At December 31 the fair market values were $40 for Staples, Inc. and $30 for Ross, Inc. Journalize the investment transactions and prepare the adjusting entry at Dec. 31 June 1: Purchased for cash 600 shares of Staples, Inc. common stock at $25 per share July 1: Purchased for cash 800 shares of Ross Inc. common stock at $35 per share Sept. 1: Received...

As of the end of the first year of operations, the projected total current assets is?

A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years. Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals....

The projected balance sheet as of the end of the first year of operations will show an owners' equity balance of?

A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years. Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals....

At the end of its third year of operations, the NusaManufacturing Company had $4,650,000 in...

At the end of its third year of operations, the Nusa Manufacturing Company had $4,650,000 in revenue (sales); $3,500,000 in cost of goods sold; $475,000 in total operating expenses; $70,000 in interest expense and had a tax liability equal to 30% of the firm’s taxable income. Construct an income statement for the year and find the net profit?

At the end of its third year of operations, the Nusa Manufacturing Company had $4,650,000 in...

At the end of its third year of operations, the Nusa Manufacturing Company had $4,650,000 in revenue (sales); $3,500,000 in cost of goods sold; $475,000 in total operating expenses; $70,000 in interest expense and had a tax liability equal to 30% of the firm’s taxable income. Construct an income statement for the year and find the net profit?

At the end of its first year of operations on December 31, 2018, the Hondo Company...

At the end of its first year of operations on December 31, 2018, the Hondo Company reported the following information for the year: (Assume any deferred tax assets are more likely than not to be realized). Pretax income for financial reporting purposes $360,000 Municipal bond interest revenue on State of Texas bonds 12,000 Warranty expense for financial reporting purposes Warranty repair costs during period 30,000 10,000 Excess of MACRS Depreciation for tax purposes above straight line for financial reporting purposes...

At the end of its first year of operations on December 31, 2018, the Skyway Company...

At the end of its first year of operations on December 31, 2018, the Skyway Company reported taxable income of $30,000 and a pretax financial loss of $40,000. Differences between taxable income and pretax financial income included:Environmental fine from the EPA = $20,000Warranty costs expensed for accounting purposes in excess of cash paid for warranty costs = $50,000(Those warranty costs are expected to be paid in 2019.) The enacted tax rates for 2018 and 2019 are 30% and 34%, respectively.REQUIRED:(a)...

The projected balance of inventories at the end of the first year of operations is?

A family friend, Mr. Burn Out availed of the early retirement scheme offered by his employer. He said that he was already tired of the same routine of spending eight full hours in an office doing the same thing for the last twenty years. Mr. Burn Out plans to get into the field of entrepreneurship. He would invest part of his retirement pay in a business that would deal with the sale of medical supplies to local clinics and hospitals....

1. A company had the following purchases during its first year of operations:

1. A company had the following purchases during its first year of operations:PurchasesJanuary:11 units at $121February:21 units at $131May:16 units at $141September:13 units at $151November:11 units at $161On December 31, there were 31 units remaining in ending inventory. These 31 units consisted of 3 from January, 5 from February, 7 from May, 5 from September, and 11 from November. Using the specific identification method, what is the cost of the ending inventory?2. During the first week of January, an employee...

Kitty Company began operations in the current year and acquired short-term debt investments in trading securities.

Kitty Company began operations in the current year and acquired short-term debt investments in trading securities. The year-end cost and fair values for its portfolio of these debt investments follow. Portfolio of Trading Securities Cost Fair Value Tesla Bonds $ 12,900 $ 9,675 Nike Bonds 21,200 22,260 Ford Bonds 5,300 4,240 Prepare journal entry to record the...

Question

At the end of the first year of operations, Key Company had a current equity securities...

Solutions

Expert Solution

Related Solutions

In the first year of operations, Acme Company had the following selected transactions in trading securities....

As of the end of the first year of operations, the projected total current assets is?

The projected balance sheet as of the end of the first year of operations will show an owners' equity balance of?

At the end of its third year of operations, the NusaManufacturing Company had $4,650,000 in...

At the end of its third year of operations, the Nusa Manufacturing Company had $4,650,000 in...

At the end of its first year of operations on December 31, 2018, the Hondo Company...

At the end of its first year of operations on December 31, 2018, the Skyway Company...

The projected balance of inventories at the end of the first year of operations is?

1. A company had the following purchases during its first year of operations:

Kitty Company began operations in the current year and acquired short-term debt investments in trading securities.