Wiley FAR Questions dealing with AFSS and Trading Securities

  • Creator
    Topic
  • #162657
    Jimbo Slice
    Member

    Cook Company had the following investment portfolio of stocks that were purchased during 2010.

    Stock Classification Cost Fair Value 12-31-10

    Company R Available-for-sale $30,000 $32,000

    Company S Trading $42,000 $46,000

    Company T Available-for-sale $15,000 $18,000

    Cook elects to use the fair value option for reporting all of its financial assets. What is the unrealized gain recognized on the income statement in 2010?

    A. $0

    B. $4,000

    C. $5,000

    D. $9,000

    Answer D is correct. Cook elects to use the fair value option. Cook will value both its trading securities and available-for-sale securities at fair value, and record the unrealized gains in earnings for the period. The gain is equal to $96,000 ($32,000 + $46,000 + $18,000) minus $87,000 ($30,000 + $42,000 + $15,000), or $9,000.

    I thought unrealized G/L for trading go to earnings (I/S) and unrealized G/L for AFSS go to OCI but Wiley is saying different?

    Can someone please clarify?

    FAR - 8/30/11 [60] | 11/23/11 [88]
    REG - 10/28/11 [84]
    BEC - 1/2/12
    AUD - 1/21/12

Viewing 3 replies - 1 through 3 (of 3 total)
  • Author
    Replies
  • #306580
    Jimbo Slice
    Member

    Nvm, I figured it out: If a gain or loss is “other than temporary” (permanent) then the loss is recognized in earnings. Or If the firm elects the fair value option for reporting available-for-sale or held-to-maturity securities, the security is revalued to fair value, and any gain or loss is recorded in earnings for the period. Likewise, if the fair value option is elected for instruments that would otherwise be reported using the rules of ASC Topic 323 (equity method), the securities are revalued to fair value, and any gain or loss is recorded in earnings for the period. If the fair value option is elected for instruments that would normally use the equity method, it must be applied to all interests in that entity (i.e., both the debt and equity instruments must be valued at fair value).

    FAR - 8/30/11 [60] | 11/23/11 [88]
    REG - 10/28/11 [84]
    BEC - 1/2/12
    AUD - 1/21/12

    #306581

    I think youre digging too deep into the question. Just remember if they elect fair value option to capitalize all investments. I find a ton of errors in my quizzes as well. One thing above all else, dont over think

    FAR 11/18
    AUD
    REG
    BEC
    ....this of course assumes the world doesnt end prior to.

    #306582
    Anonymous
    Inactive

    @Jimbo Slice

    Based on ASC 825 “If the firm elects fair value option for reporting AFS or Held to maturity securities, the security is revalued to fair value and any gain or loss is recorded in the earnings for the period.”

    Basically, the unrealized gains or losses goes to Income statement NOT on OCI if the firm choose to report the fair value option. If it is equity method, then it may go to OCI.

    If you have wiley book, you can read more details on page 541 – Fair Value Option. Good question and thanks for asking.

    Good Luck.

Viewing 3 replies - 1 through 3 (of 3 total)
  • The topic ‘Wiley FAR Questions dealing with AFSS and Trading Securities’ is closed to new replies.