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Leto [7]
3 years ago
5

Nichols Enterprises has an investment in 30,500 bonds of Elliott Electronics that Nichols accounts for as a security available-f

or-sale. Elliott bonds are publicly traded, and The Wall Street Journal quotes a price for those bonds of $14 per bond, but Nichols believes the market has not appreciated the full value of the Elliott bonds and that a more accurate price is $18 per bond. Nichols should carry the Elliott investment on its balance sheet at:a. $442,000, the midpoint of Nichols' range of reasonably likely valuations of Elliott.b. $468,000c. $416,000d. Either $416,000 or $468,000 as either are defensible valuations.
Business
1 answer:
Alja [10]3 years ago
6 0

Answer:

30,500 bonds x $14 per bond = $427,000

Explanation:

Nicols Enterprises must carry the Elliot investment on its balance sheet using the fair market value of the stocks (value given by the stock market).

The reliability principle states that only transactions that can be proven have to be recorded. So how can Nichols prove that Elliott's stock is worth $18, or maybe $1,000 or even $1 million. They can´t prove any of that, that is why they have to use the fair market value.

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