Question

In: Accounting

Use the following information for parts A through C. On its December 31, 2007 balance sheet,...

Use the following information for parts A through C.

On its December 31, 2007 balance sheet, Klugman Company appropriately reported a $10,000 debit balance in its Securities Fair Value Adjustment (Available-for-Sale) account. There was no change during 2008 in the composition of Klugman’s portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio:

      Security                  Cost                Fair value at 12/31/08

                       X                    $125,000                     $160,000

                       Y                      100,000                         95,000

                       Z                    175,000                     125,000

                                             $400,000                    $380,000

A. The Journal entry required to properly record the AFS ( Available for sale) securities at 12/31/2017. What would be the securities fair value adjustment account ?

a.   $30,000.

b.   $20,000.

c.   $10,000.

d.   $0.

B.    The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2008 is

a.   $30,000.

b.   $20,000.

c.   $10,000.

d.   $0.

C. The only item that impacts the AOCI for Klugman is AFS debt investment. What is the balance in the AOCI account as of 12/31/2017?

a.   $30,000.

b.   $20,000.

c.   $10,000.

d.   $0.

Solutions

Expert Solution

Answer to Question 1: The correct option is C. USD 10,000.

The total cost of investments is 400,000 and the securities fair value adjustment account has a balance of USD 10,000, taking the net value to 390,000. Fair value on reproting date is USD 380,000. Therefore, the journal entry passed will be for the differential of USD 390,000 less USD 380,000, i.e. recording a further loss of USD 10,000

Answer to Question 2

The amount of cumulative loss accearing as a component of other comprehensive income is USD 20,000.i.e. cost of 400,000 less fair value of 380,000.

Answer to question 3

The correct option is B. USd 20,000. AOCI represents accumulated gains and losses for income statement items which are required to be classified under other comprehensive income. In this case if the AFS debt investment is the only item which impacts the AOCI, the overall balance of AOCI will be USD 20,000, ie. the cumulative loss on the AFS debt

Please comment for any clarifications

ekkarill92 answered 7 months ago
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