...Professional Research for Accountants December 13, 2015 Comprehensive Research Memorandum Motivation: The job of an investment management company is to oversee and manage the securities that, in this case for small to medium companies, companies acquire. A major part of his responsibility is to ensure the companies are receiving the maximum tax advantage possible. Also part of his responsibilities would be to recommend stock selection, and asset selection. This particular case is about a group whose Director is unsure of the accounting for gains and losses on securities. Additionally, he is unsure about the accounting treatment of realized and unrealized gains and losses on the investments which would include knowing if there is any impairment, if the impairment is temporary or otherwise for the securities the companies hold. This research yielded information to education the Director and his staff on the accounting of investment securities for his clients. Problem Statement: How should ABC Investment Group account for treatment of unrealized gains and losses on bonds and under what conditions these securities may be impaired. If impaired, how to determine a write down and how to report in the financials. Assumptions: Clients do not have significant influence over the financials of the companies they hold securities in. This research was confined to investment purchased by ABC’s clients and that none of the clients held any securities where they could influence the work or...
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...Samah Alshaikh Re: Porter Industries common stock impairment Facts: Our client, Lennon Incorporated, in January 10, 2014, purchased 100 shares of Porter Industries common stock on for $25 per share. The corporation classified the investment as an available for sale security. The price of the Porter Industries shares has declined to $18 per share In March. Then, the price stayed stable between $17.70 and $18.20 per share from April to November. On December 31, 2014, the price of Porter Industries common stock was $18.10 per share. Lennon management believes that the price decreasing is temporary, and Lennon management does not intend to sell the stock in the next year. Lennon reported its investment in Porter Industries...
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...Incorporated 1. For the following investments, determine if Astro should record an other-than-temporary impairment as of December 31, 2014, and if so, for what amount: * Happy New Year & Co. – Astro should not recognize because it has no intention to sell and there is not a permanent decline. * Beary Beary – Astro should recognize because it has an intention to sell and recognizes an impairment loss of $7 per share ($95-$88). * Buy-A-Lot Company – Astro should not recognize because it has no intention to sell and credit rating upgraded from BBB to BBB+. * ASC 320-10-35-21: “An investment is impaired if the fair value of the investment is less than its cost.” * ASC 320-10-35-33: “When an entity has decided to sell an impaired available-for-sale security and the entity does not expect the fair value of the security to fully recover before the expected time of sale, the security shall be deemed other-than-temporarily impaired. * ASC 320-10-35-33F: “There are numerous factors to be considered when estimating whether a credit loss exists and the period over which the debt security is expected to recover.” 2. Assuming Astro has determined its investment in March Madness Incorporated stock is other-than-temporarily impaired, how much should be recorded as an impairment charge as of December 31, 2014? * $5,000 of CV – ($72/share * 50 shares) = $1,400 * ASC 320-10-35-33 other-than-temporary impairment is difference between CV and FV of stock...
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...Other-Than-Temporary Impairment 1. For the following investments, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1, and if so, for what amount: • Happy New Year & Co. * Since the fair value of investment is less than its cost, the Company should proceed to step 2 for identifying and accounting for impairment. However, there is no indication that OTT does not expect the fair value of the security to fully recover before the expected time of sale. The Company actually does not believe the decline in price to be permanent. In addition, it does not intend to sell this investment in the future. So, no record is needed. (FASB 320-10-35-24 and 33) • Beary Beary. * Since the fair value of investment is less than its cost, the Company should proceed to step 2. An other-than-temporary impairment should be considered to have occurred because the Company intends to sell the note. Since OTT requires the sale of this security when the fair value declines below $90, the impairment should be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Therefore, the amount recorded should be $7. (FASB 320-10-35-24, 33A, and 34B) • Buy-A-Lot Company. * Since the fair value of investment is less than its cost, the Company should proceed to step 2. OTT does not intend to sell this investment in the future...
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...Question 1 Jim Beatty’s claim that no impairment is needed because the overall investment portfolio of public equity securities is in an unrealized gain position is invalid. According to ASC 320-10-35-20, in determining whether an investment is impaired, impairment should be assessed at the individual security level. Instead of assessing the impairment of the portfolio as a whole, Jim Beatty needs to check for impairment of individual securities. However, this also means that the company can evaluate the aggregate investment in Wells Fargo altogether, rather than just the stock that is in a loss position. Question 2 In determining whether these investments are other-than-temporarily impaired, the company should consider the following (SAB 111): • The amount of the loss and the length of time that the investment has been in a loss position. • The financial condition and near-term prospects of the issuer, including any changes or events that could affect the operations of the issuer. • The investor’s intent and ability to hold an investment until fair value recovers. Question 3 Kraft Foods and Sanofi-Aventis: The company should record other-than-temporary impairments for Kraft Foods and Sanofi-Aventis because these investments have had a fair value below cost for 24 and 30 months and the amount of the losses are large. The gross loss for Sanofi-Aventis increased during 2013. Although the gross loss for Kraft Foods decreased during 2013, it remains in a loss position...
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...Question 1- For the following investments, determine if Astro should record an other-than-temporary impairment as of December 31, 2014, and if so, for what amount: * Happy New Year & Co. * Beary Beary * Buy-A-Lot Company According to ASC 320-10-35-30, the securities held in Happy New Year & Co. are not other than temporary. The codification states that the entity has to intend to sell the security, as well as, not expect to recover the entire amortized cost basis of the security. Happy New Year & Co. do not intend to sell the security because they believe that the decline in price is permanent. The policy that Beary Beary has in place states that they are required to sell this security when the price drops below $90. The price of this security at December 31, 2014 is at $88, which is below the $90 policy. Although Beary Beary is still holding on to this investment while it is violating the policy, the policy means that they are intending to sell this security. In ASC 320-10-35-34B, the Other-than-temporary amount recorded is the full amount of the amortized cost basis minus the fair value amount. This makes the other than temporary loss amount recorded in earnings $8. As part of ASC 320-10-35-30, it states that a security is other than temporary if the entity does not expect to recover the entire amortized cost basis of the security. This is the case with the security that Astro holds in Buy-A-Lot Company. However this security is not classified as...
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...In this case we deal with two different scenarios. In the first scenario we have to deal with two types of investments, one is municipal bond and the other one is corporate bond. In the second scenario we deal with common shares. Below listed codifications Support these scenarios. Relating to scenario A, my estimation of the fairness of the client’s assumption regarding its investment portfolio that the securities are not other-than-temporarily impaired is based on the following information/codifications stated below. ASC 360-10-20: Impairment is the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value. According to the codification stated above: Municipal bonds amortized costs $8,500,000 exceeds its fair value of $7,500,000. Corporate bonds amortized costs $8,200,000 exceeds its fair value of $6,800,000. Therefore impairment exists. ASC 320-10-35-33A: If an entity intends to sell the debt security (that is, it has decided to sell the security), an other-than-temporary impairment shall be considered to have occurred. ASC 320-10-35-33B: If an entity does not intend to sell the debt security, the entity shall consider available evidence to assess whether it more likely than not will be required to sell the security before the recovery of its amortized cost basis (for example, whether its cash or working capital requirements or contractual or regulatory obligations indicate that the security will be required to be sold before...
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...Company From: Subject: Investment Accounting Date: October, 2013 Introduction: This document will discuss and define how Cascade Company should account for investments in different forms and situations. If these guidelines are followed, Cascade Company will be in coherence with FASB concatenations. Readily Determinable: According to the authoritative literature, the fair value of a security is readily available when its specifications meet any of the following conditions (According to FASB ASC 320-10-20 Glossary): I. The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by Pink Sheets LLC. Restricted stock meets that definition if the restriction terminates within one year. II. The fair value of an equity security traded only in a foreign market is readily determinable if that foreign market is of a breadth and scope comparable to one of the U.S. markets referred to above. III. The fair value of an investment in a mutual fund is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions. The investment possibilities for Cascade...
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...03 Chapter - Consolidations--Subsequent to the Date of Acquisition 1 Answers to Discussion Questions How Does a Company Really Decide which Investment Method to Apply? Students can come up with literally dozens of factors that should be considered by Pilgrim in making the decision as to the method of accounting for its subsidiary, Crestwood Corporation. The following is simply a partial list of possible points to consider. Use of the information. If Pilgrim does not monitor its own income levels closely, applying the equity method would seem to be a waste of time and energy. A company must plan to use the additional data before the task of accumulation becomes worthwhile. Size of the subsidiary. If the subsidiary is large in comparison to Pilgrim, the effort required of the equity method may be important. Income levels would probably be significant. However, if the subsidiary is actually quite small in relation to the parent, the impact might not be material enough to warrant the extra effort. Size of dividend payments. If Crestwood pays out most of its earnings each period as dividends, that figure will approximate equity income. Little additional information would be accrued by applying the equity method. In contrast, if dividends are small or not paid on a regular basis, a Dividend Income balance might vastly understate the profits to be recognized by the business combination. Amount of excess amortizations. If Pilgrim has paid a significant amount in excess of book value...
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...Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Multiple Choice Questions In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: 1. Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative? A. 10,000 B. 7,000 C. 8,000 D. 25,000 2. Based on the preceding information, what was Conservative's book value of assets transferred to Spin Company? A. $243,000 B. $263,000 C. $221,000 D. $201,000 1-1 Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities 3. Based on the preceding information, what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities? A. $181,000 B. $221,000 C. $263,000 D. $243,000 4. Based on the preceding information, immediately after the transfer, A. Conservative's total assets decreased by $23,000. B. Conservative's total assets decreased by $20,000. C. Conservative's total assets increased by $56,000. D. Conservative's total assets remained the same. During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these...
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...Advanced Accounting Third Edition Susan S. Hamlen University at Buffalo, The State University of New York Ronald J. Huefner University at Buffalo, The State University of New York James A. Largay III Lehigh University Cambridge BUSINESS PUBLISHERS Cambridge Business Publishers ADVANCED ACCOUNTING, Third Edition, by Susan S. Hamlen, Ronald J. Huefner, and James A. Largay III. COPYRIGHT © 2016 by Cambridge Business Publishers, LLC. Published by Cambridge Business Publishers, LLC. Exclusive rights by Cambridge Business Publishers, LLC for manufacture and export. ALL RIGHTS RESERVED. No part of this publication may be reproduced, distributed, or stored in a database or retrieval system in any form or by any means, without prior written consent of Cambridge Business Publishers, LLC, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. STUDENT EDITION ISBN: 978-1-61853-151-3 Bookstores & Faculty: to order this book, call 800-619-6473 or email customerservice@cambridgepub.com. Students: to order this book, please visit the book’s Website and order directly online. Printed in Canada. 10 9 8 7 6 5 4 3 2 1 PREFACE W elcome to Advanced Accounting. We wrote this book with two major objectives in mind. First, we seek to reflect the changing topical emphases and content in the advanced accounting course; coverage is completely updated for new developments concerning...
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...You can buy the this complete file at http://testbanksfor.com TEST BANK CHAPTER 1 Intercorporate Investments: An Overview MULTIPLE CHOICE Use the following information on a company’s investments in equity securities to answer questions 1 4 below. The company’s accounting year ends December 31. Investment Ajax Company stock Bril Corporation stock Coy Company stock 1. Date of acquisition 6/20/13 5/1/13 8/2/13 Cost $40,000 20,000 16,000 Fair value 12/31/13 $35,000 N/A 16,500 Date sold 2/10/14 11/15/13 1/17/14 Selling price $32,000 26,000 23,000 Topic: Accounting for trading securities LO 1 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2013 income statement? a. b. c. d. $1,500 gain $6,000 gain no gain or loss $4,500 loss ANS: a 2. Topic: Accounting for trading securities LO 1 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2014 income statement? a. b. c. d. $1,000 loss $4,000 loss $3,500 gain $6,000 loss ANS: c You can buy the this complete file at http://testbanksfor.com 3. Topic: Accounting for AFS securities LO 1 If the above investments are categorized as availableforsale securities, what amount is reported for gain or loss on securities, on the 2013 income statement? a. b. c. d. $1,500 gain ...
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...McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2009 Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e 3-1 CHAPTER 3 CONSOLIDATIONS—SUBSEQUENT TO THE DATE OF ACQUISITION Answers to Discussion Questions How Does a Company Really Decide which Investment Method to Apply? Students can come up with literally dozens of factors that should be considered by Pilgrim in making the decision as to the method of accounting for its subsidiary, Crestwood Corporation. The following is simply a partial list of possible points to consider. Use of the information. If Pilgrim does not monitor its own income levels closely, applying the equity method would seem to be a waste of time and energy. A company must plan to use the additional data before the task of accumulation becomes worthwhile. Size of the subsidiary. If the subsidiary is large in comparison to Pilgrim, the effort required of the equity method may be important. Income levels would probably be significant. However, if the subsidiary is actually quite small in relation to the parent, the impact might not be material enough to warrant the extra effort. Size of dividend payments. If Crestwood pays out most of its earnings each period as dividends, that figure will approximate equity income. Little additional information would be accrued by applying the equity method. In contrast, if dividends are small or not paid on a regular basis, a Dividend Income balance might vastly understate the profits to be recognized...
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...CHAPTER 3 CONSOLIDATIONS—SUBSEQUENT TO THE DATE OF ACQUISITION Answers to Discussion Questions How Does a Company Really Decide which Investment Method to Apply? Students can come up with literally dozens of factors that should be considered by Pilgrim in making the decision as to the method of accounting for its subsidiary, Crestwood Corporation. The following is simply a partial list of possible points to consider. Use of the information. If Pilgrim does not monitor its own income levels closely, applying the equity method would seem to be a waste of time and energy. A company must plan to use the additional data before the task of accumulation becomes worthwhile. Size of the subsidiary. If the subsidiary is large in comparison to Pilgrim, the effort required of the equity method may be important. Income levels would probably be significant. However, if the subsidiary is actually quite small in relation to the parent, the impact might not be material enough to warrant the extra effort. Size of dividend payments. If Crestwood pays out most of its earnings each period as dividends, that figure will approximate equity income. Little additional information would be accrued by applying the equity method. In contrast, if dividends are small or not paid on a regular basis, a Dividend Income balance might vastly understate the profits to be recognized by the business combination. Amount of excess amortizations. If Pilgrim has paid a significant amount in excess of book value so that...
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...introduced as Exposure Draft E28, Accounting for Investments in Associates and Joint Ventures, in July, 1986. The history of IAS 28 is as follows in the table below which shows the last amendment being in 2011 with an effective date of January 1, 2013. History of IAS 28 (as amended in 2011) July 1986 | Exposure Draft E28 Accounting for Investments in Associates and Joint Ventures | April 1989 | IAS 28 Accounting for Investments in Associates | 1 January 1990 | Effective date of IAS 28 (1989) | 1994 | IAS 28 was reformatted | December 1998 | IAS 28 was amended by IAS 39 Financial Instruments: Recognition and Measurement effective 1 January 2001 | 18 December 2003 | Revised version of IAS 28 issued by the IASB | 1 January 2005 | Effective date of IAS 28 (2003) | 10 January 2008 | Some significant revisions of IAS 28 as a result of the Business Combinations Phase II Project relating to loss of significant influence | 22 May 2008 | IAS 28 amended for Annual Improvements to IFRSs 2007 about impairment testing | 1 January 2009 | Effective date of May 2008 amendments to IAS 28 | 1 July 2009 | Effective date of January 2008 amendments to IAS 28 | 12 May 2011 | IAS 28 (as amended in 2011) Investments in Associates and Joint Ventures issued. This version supersedes IAS 28 (2003) Investments in Associates. | 1 January 2013 | Effective date of IAS 28 (as amended in 2011) | | IAS applies to all investments in which an investor has significant influence but...
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