Docstoc

fas115

Document Sample
fas115 Powered By Docstoc
					Investments (FAS 115, amended)

A. Short term investments in equity securities

1. Classification: Trading securities

Purchase: 1st quarter, 1995
                                                  market value,
Name               price/share cost
         # of shares         total                end of 1st quarter

Growex          400       $50           $20,000 $26,000
Uptown          200       $35            $7,000 $6,000
Fast           1000       $50           $50,000 $52,000
                                        $77,000 $84,000

to record purchase:
dr. investment in securities            $77,000
  cr. Cash                                         $77,000

note: transaction costs are ignored. Any transaction costs are added to the
cost of the investment and thus eventually affect gains and/or losses.

1st quarter:          received $1/share dividend on Uptown, $.5/share on Fast

dr. cash                                   $700
  cr. Investment income, Uptown                       $200
  cr. Investment income, Fast                         $500

at end of 1st quarter:

dr. allowance for in-
increase investments                     $7,000
  cr. Unrealized increase in
       value of securities                          $7,000

                      Income Statement, 1st quarter

         Other income (expenses):
         dividend income                              $700
         unrealized increase in value
         of trading securities                      $7,000

                      Balance Sheet
Current assets
investment in securities
at cost                                        $77,000
allowance for change in
value of investments                            $7,000 $84,000


2. If Securities are classified as available for sale

                                  Income Statement, 1st quarter

          Other income (expenses):
          dividend income                                    $700

Following the income statement or in a separate statement:

          Comprehensive income:
          unrealized increase in value
          of trading securities                            $7,000

2nd quarter:        Sale of Growex for $67/share:

dr. cash                               $26,800
dr. unrealized increase (O/E)            $6,000
  cr. Investment in Growex                      $20,000
  cr. Gain on sale                               $6,800
  cr. Allowance for change in value of …         $6,000

end of 2nd quarter:

Name      # of      price/        total cost             market value,
          shares    share                                end of 1st quarter

Ganimed       300            45                $13,500 $14,000
Uptown        200            35                 $7,000 $6,500
Fast         1000            50                $50,000 $48,000
                                               $70,500 $68,500

Adjustment needed to allwance account:                   debit    credit
balance in account, end 1st q                              $7,000
sale of Growex                                                      $6,000
required ending balance                                             $2,000
Adjustment needed to allwance account:                              $3,000
dr. unrealized decrease in value of securities         $3,000
  cr. Allowance for securities valuation                          $3,000

                      Income Statement, 2nd quarter

          Other income (expenses):
          gain on sale of securities                   $6,800
          unrealized decrease in value
          of trading securities                        $3,000

3. Investment in Debt securities classified as held to maturity

(if debt securities are classified as either trading or as available for sale, the
accounting is identical to the example above)

                                                    market value,
Name               p         total cost
          # of bonds rice/bond                      end of 1st quarter

Aone             20    $1,050             $21,000    $26,000
Twobit           35    $1,000             $35,000    $33,500
Trix             15      $990             $14,850    $15,000
                                          $70,850    $74,500

Since bonds are classified as held to maturity, no recognition is made of the
change in value.
                                                 market value,
Name              p         total cost
         # of bonds rice/bond                    end of 2nd quarter

Aone             20    $1,050             $21,000    $22,000
Twobit           35    $1,000             $35,000    $14,000
Trix             15      $990             $14,850    $15,000
                                          $70,850    $51,000

Twobit bonds have suffered a major decline in value, since the company has
 announced that it will not be able to meet its interest obligations and is trying to
renegotiate terms. This decline is assumed to be permanent

dr. loss in decline of bonds                         $11,000
   cr. Bond investment - Twobit                                  $11,000

This should be reflected on the income statement and the balance sheet.
(Even though the loss has not been realized (cash!) it is reported as a realized loss

Transfer from avaliable for sale to trading         recognize unrealized holding gains in
                                                            current income

Example:                                                    1st quarter 2ns quarter
                                    Cost                    Market
Ganimed           300          45                $13,500 $14,000             15000

transfer of stock at end of second quarter from available for sale to trading:

dr. investment -trading                                         $15,000
dr. allowance for market adj.                                      $500
  cr. Investment - available for sale                                        $13,500
  cr. Unrealized holding gain                                                 $1,500
  cr. Other comprehensive income (O/E)                                          $500

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:1
posted:6/25/2011
language:English
pages:4