Question

1.If a company purchases its long term investments in available for sale debt securities this period and their fair value is below cost at the balance sheet date, what entry is required to recognize the unrealized loss?

2. On a balance sheet, what valuation must be reported for debt securities classified as available for sale?

3. Under what circumstances are long-term investments in debt securities reported at cost and adjusted for amortization of any difference between cost and maturity value?

4. In accounting for investments in equity securities, when should the equity method be used?

Answer 1

1.Unrealized loss-Equity......................................................... ##

         Fair Value Adjustment—Available-for-Sale (LT) ##

2.On a balance sheet, valuation for debt securities reported in particular way. The portfolio for investments in available-for-sale securities should reported on the balance sheet at fair (market) value in different conditions. This is separated into short- and long-term according to characteristics and timeframe.

3.There are many circumstances at which are long term investments in debt securities reported at cost. The portfolio of long-term investments in debt securities is always be reported at cost adjusted for amortization of any difference between the cost and maturity when the investments are classified as held-to-maturity debt securities.

4.The equity method is used when the investor has a “significant influence” over the investee corporation; i.e., generally when the investor owns 20% or more of the investee's voting stock. The equity method with consolidation is used when the investor has a “controlling influence” over the investee.