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Chapter 13: Q15 (page 658)

Distinguish between the accounting treatment for marketable versus nonmarketable equity securities.

Short Answer

Expert verified

The difference between Marketable securities and non-marketable securities is the price at which both are recorded.

Step by step solution

01

Definition of marketable securities

Marketable securities are securities that can be sold very easily.

02

Definition of non-marketable securities

Non-marketable securities are securities that cannot be sold easily. It is also very difficult to buy these securities.

03

Difference between treatment of marketable and non-marketable equity securities

Difference between marketable securities and non-marketable securities:

a. It is very easy to buy marketable securities, whereas it is very difficult to buy non-marketable securities.

b. It is very easy to sell marketable securities, whereas it is very difficult to sell non-marketable securities.

c. Marketable securities are on their fair value, whereas non-marketable are recorded on their cost.

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Most popular questions from this chapter

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above

(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out

40% of net income in dividends each year.

Instructions

Use the information in the following T-account for the investment in Sub to answer the following questions.

Investment in Sub Co.

1,000,000

110,000

44,000

(a) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 net income for the year?

(b) What was Sub Co.鈥檚 total net income for the year?

(c) What were Sub Co.鈥檚 total dividends for the year?

(d) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 dividends for the year?

Which types of investments are valued at amortized cost? Explain the rationale for this accounting.

Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable
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