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Chapter 13: Q17-7Q (page 658)

Question: At what amount should trading, available-for-sale, and held-to-maturity debt securities be reported on the balance sheet?

Short Answer

Expert verified

Answer:

Trading and available-for-sale are reported on the fair of the securities, whereas held-to-maturity securities are treated as amortized costs while reporting it.

Step by step solution

01

Definition of held-to-maturity debt securities

Held-to-maturity is a type of debt security that the company holds until the maturity of the debt security.

02

Reporting in balance sheet

Trading debt securities are reported on the fair value. Securities available-for-sale is also reported on the fair value of the security. The fair value of securities will be in the same currency used at the time of the issue. Securities held-to-maturity is treated as the amortized cost while reporting it.

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Most popular questions from this chapter

Alvarado Company sells a machine for \(7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the total warranty cost is \)390 per machine (\(170 parts and \)220 labor).

Instructions

Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?

(a) Sale of machinery and warranty expense incurred in 2017.

(b) Warranty accrual on December 31, 2017.

(c) Warranty costs incurred in 2018.

(d) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017?

E13-11 (L03) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at \(6,000each. During 2017, Crow spent \)20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicabletransactions are on a cash basis.Instructions(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be \(55,000 for2 years.(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty).Assume that of the sales total, \)56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicingthe warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.

(Cash Flow Hedge) On January 2, 2017, Parton Company issues a 5-year, \(10,000,000 note at LIBOR, with

interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%.

Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an

interest rate swap to pay 6% fixed and receive LIBOR based on \)10 million. The variable rate is reset to 6.6% on January 2, 2018.

Instructions

(a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2017.

(b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2018.

Question: (Free-Standing Derivative) Warren Co. purchased a put option on Echo common shares on January 7, 2017,

for \(360. The put option is for 400 shares, and the strike price is \)85 (which equals the price of an Echo share on the purchase

date). The option expires on July 31, 2017. The following data are available with respect to the put option.

Date Market Price of Echo Shares Time Value of Put Option

March 31, 2017 \(80 per share \)200

June 30, 2017, 82 per share 90

July 6, 2017, 77 per share 25

Instructions

Prepare the journal entries for Warren Co. for the following dates.

(a) January 7, 2017鈥擨nvestment in a put option on Echo shares.

(b) March 31, 2017鈥擶arren prepares financial statements.

(c) June 30, 2017鈥擶arren prepares financial statements.

(d) July 6, 2017鈥擶arren settles the put option on the Echo shares.

Presented below are two different situations related to Mckee Corporation鈥檚 debt obligation. Mckee鈥檚 next financial reporting date is December 31, 2017. The financial statements are authorized for issuance on March 1, 2018.

  1. Mckee has a long-term obligation of \(400,000, which is maturing over 4 years in the amount of \)100,000 per year. The obligation is dated November 1, 2017, and the first maturity date is November 1, 2018.
  2. Mckee has a short-term obligation due February 15, 2018. Its lender agrees to extend the credit to the maturity date of this loan to February 15, 2018. The agreement for extension is signed on January 15, 2018.

Instructions

Indicate how each of these debt obligations is reported on McKee鈥檚 statement of financial position on December 31, 2017.
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