Question

Kyler Shea Productions held investments in equity securities​ (in Essence ​Company) with a fair value of $ 60 comma 000 at December​ 31, 2018. These investments cost Kyler Shea Productions $ 55 comma 000 on January​ 1, 2018. What is the appropriate amount for Kyler Shea Productions to report for these investments on the December​ 31, 2018​, balance​ sheet? (Assume that Kyler Shea has insignificant influence over Essence ​Company.)

Answer 1

Answer:

The fair value of $ 60 comma 000

Explanation:

Although under US GAAP, the basic accounting principle is historical cost principle in which original cost of purchasing assets are used to record most assets, especially fixed assets, despite that there might have been significant rise in their value over time.

However, not all assets are recorded at their historical cost. Financial assets which are intangible such as market securities are recorded in the balance sheet at their fair value. Intangible assets which have impaired are reduced  their fair value from the historical cost.

Since investments in equity securities​ (in Essence ​Company) by Kyler Shea Productions is an intangible marketable security, the appropriate amount for Kyler Shea Productions to report for these investments on the December​ 31, 2018​ in the balance​ sheet is fair value of $ 60 comma 000.