Explore BrainMass
Share

Accounting treatment for trading and available-for-sale

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Can you help me get started with this assignment?

(Trading and Available-for-Sale Securities Entries) McElroy Company has the following portfolio of investment securities at September 30, 2010, its last reporting date.
Trading Securities Cost Fair Value
Horton, Inc. common (5,000 Shares) $215,000 $200,000
Monty, Inc. preferred (3,500 Shares 133,000 140,000
Oakwood Corp. common (1,000 Shares) 180,000 179,000

On October10, 2010, the Horton Shares were sold at a price of $54 per share. In addition, 3,000 shares of Patriot common stock were acquired at $54.50 per share on November 2, 2010. The December 31, 2010, fair values were: Monty $106,000 Patriot $132,000 and the Oakwood common $193,000. All the securities are classified as trading.
Instructions:
(a) Prepare the journal entries to record the sale, purchase, and adjusting entries related to the trading securities in the last quarter of 2010.
(b) How would the entries in part (a) change if the securities were classified as available-for-sale?

© BrainMass Inc. brainmass.com October 17, 2018, 2:41 am ad1c9bdddf
https://brainmass.com/business/valuing-securities/accounting-treatment-for-trading-and-available-for-sale-392122

Solution Preview

Your solution is below. Glad to help. :)

======================
(Trading and Available-for-Sale Securities Entries) McElroy Company has the following portfolio of investment securities at September 30, 2010, its last reporting date.
Trading Securities Cost Fair Value
Horton, Inc. common (5,000 Shares) $215,000 $200,000
Monty, Inc. preferred (3,500 Shares 133,000 140,000
Oakwood Corp. common (1,000 Shares) 180,000 179,000

On October10, 2010, the Horton Shares ...

$2.19
Similar Posting

Qtip Corp owns stock in Maxey Corp. The investment represents a 10% interest and Qtip is unable to exercise significant influence over Maxey.
The Maxey stock was purchased by Qtip on January 1, 2002 for $23,000. The stock consistently pays an annual dividend to Qtip of $2,000. Qtip classifies the stock as available for sale. Its fair value at December 31, 2009 was $21,600. The amount was properly reported as an asset in the balance sheet. Due to the development of a new Maxey product line, the market value of Qtip's investment rose to $27,000 at December 31, 2010.
The Qtip management team is aware of the provisions of SFAS No. 115. The possibility of changing the classification from available for sale to trading is discussed. This change is justified, the managers say, because they intend to sell the security at some point in 2011 so that they can realize the gain.
a. Discuss the role that managerial intention playing in the accounting treatment of equity securities that have a readily determinable fair value under SFAS no. 115.
b. What income statement effect if any would the change in classification have for Qtip?
c. Are there any ethical considerations that need to be considered?
d. Opponents of SFAS No. 115 contend that allowing a change in classification masks effects of unrealized losses and results in improper matching of market value changes with accounting periods. Describe how the accounting treatment and proposed change in classification would result in this sort of mismatching.

View Full Posting Details