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boyakko [2]
3 years ago
9

The following information shows Carperk Company's individual investments in securities during its current year, along with the D

ecember 31 fair values. Investment in Brava Company bonds: $416,850 cost; $453,116 fair value. Carperk intends to hold these bonds until they mature in 5 years. Investment in Baybridge common stock: 29,500 shares; $331,396 cost; $360,227 fair value. Carperk owns 32% of Baybridge's voting stock and has a significant influence over Baybridge. Investment in Duffa bonds: $170,909 cost; $184,240 fair value. This investment is not readily marketable and is not classified as held-to-maturity or trading. Investment in Newton notes: $95,042 cost; $93,426 fair value. Newton notes are not readily marketable and are not classified as held-to-maturity or trading. Investment in Farmers common stock: 16,300 shares; $104,213 cost; $110,674 fair value. This stock is marketable, and Carperk intends to sell it within the year. This stock investment results in Carperk having an insignificant influence over Farmers. Required: 1. Identify whether each investment should be classified as a short-term or long-term investment. For each investment, indicate in which of the six investment classifications it should be placed. 2. Prepare a journal entry dated December 31 to record the fair value adjustment for the portfolio of available-for-sale debt securities. Carperk had no available-for-sale debt securities prior to this year.
Business
1 answer:
melamori03 [73]3 years ago
7 0

Answer:

a. See the table below.

b. Debit Fair value adjustment - Available-for-sale for $47,981; and Credi Unrealized gain - Debt for $47,981.

Explanation:

1. Identify whether each investment should be classified as a short-term or long-term investment. For each investment, indicate in which of the six investment classifications it should be placed.

This can be done as follows:

<u>No.      Types of investment           Classification of investment           </u>

a.         Long-term investment         Debt investment held to maturity

b.         Long-term investment         Equity method investments 20%-50%

c.         Long-term investment         Available for sale dbt securities

d,         Long-term investment         Available for sale dbt securities

e.         Short-term investment        Stock investment <20%

2. Prepare a journal entry dated December 31 to record the fair value adjustment for the portfolio of available-for-sale debt securities. Carperk had no available-for-sale debt securities prior to this year.

The journal entries will look as follows:

<u>General Journal                                               Debit ($)           Credit ($)  </u>

Fair value adjustment - Available-for-sale     47,981

Unrealized gain - Debt (w.1)                                                        47,981

<em><u>(To record the fair value adjustment for the portfolio of available-for-sale debt securities).  </u></em>

<u>Workings (w.1):</u>

No      Fair Value ($)       Cost ($)         Gain (loss) ($)

                    A                       B                   C = A - B

a.              453,116            416,850               36,266

c.             184,240            170,909                 13,331

d.           <u>   93,426   </u>        <u>   95,042 </u>                <u>  (1,616) </u>

Total      <u>  730,782 </u>        <u>  682,801 </u>            <u>   47,981 </u>

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This is basically an agency service as the person who is beneficiary is just depositing the amount top be invested which is then taken care of as an agent.

The correct option is a.

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What is (are) the main problems in using a balance sheet to provide an accurate assessment of the value of a company's equity?
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Answer:

A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet.

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Therefore the correct option is a.

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