You are the controller for Bizbee Corporation, and a few days ago, you provided a draft...

You are the controller for Bizbee Corporation, and a few days ago, you provided a draft of this year's financial statements to the chief executive officer (CEO) of the company, Mr. Bizbee. You rode up in the elevator with him today, and he began to quiz you about how you reported the company's investments in debt and equity securities. He said to you, "When I took accounting in college, investment securities were reported at historical cost. I remember what we paid for some of our investments, and the numbers on the financial statements don't match those amounts! What's going on? Be in my office this afternoon to explain!"

To get ready for your meeting, assemble the following:

The valuation approach was used on the balance sheet for the investments. Provide an analysis on why you used this approach. Assume your company has only debt and equity securities where the equity interest is less than 20%. The company's debt securities are all classified as held to maturity, but it has both trading and available-for-sale equity securities.
Assemble and evaluate which generally accepted accounting principles (GAAP) for investment securities changed from historical cost to the current valuation approach.
Assess how investment securities should be valued on the company's financial statements.

Solutions

Expert Solution

As per Generally Accepted Accounting Principles Investments should reported : Cost or Market Value which ever is Lower.

1) The Valuation approach used on the balance sheet for Investments is Cost or Market Vale which ever is lower.Further it is mentioned that Investment includes Debt Securities.As per GAAP Debenture securities is to be repayable on cost at the time of maturity so debt securities are shown at historical cost.

Further Debt instruments are classified as Trading and Available for sale equity securities.Debt securities under trading should be reported on cost or market value which ever is lower and debt securities under available for sale equity securities should be reported at cost.

2) Mark to Market Value approach assemble and evaluate the generally accepted accounting principles (GAAP) for investment securities changed from historical cost to the current valuation approach.

3) Investment securities should be valued by using cost or market value which ever is lower.

ekkarill92 answered 1 year ago

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