S-A E 223
(Communication)
Sue Garner is the daughter of Fred Garner, the founder and president of Big Sky Enterprises. She has been working in various departments during school vacations throughout high school. She burst into the accounting department excitedly one morning. She said that the share price of several of the firm's non-trading securities are up, and that her father said that the company had made over $10,000 because of this jump in share prices. She asks to see how the increase is recorded. It is a very busy time in the accounting department, and so her question is deferred.
Required:
Prepare a brief note to answer Sue's question.
GAAP QUESTIONS
1.The following asset is
not
considered a financial asset under both GAAP and IFRS
a.inventories.
b.held-for-collection securities.
c.equity securities.
d.trading securities.
2.Under GAAP, the equity method of accounting for long-term investments in ordinary shares should be used when the investor or has significant influence over an investee and owns
a.less than 20% of the investee’s ordinary shares.
b.more than 50% of the investee’s ordinary shares.
c.30% or more the investee’s ordinary shares.
d.between 20% and 50% of the investee’s ordinary shares.
3.At the end of the first year of operations, the total cost of the trading investments portfolio is $140,000. Total fair value is $125,000. The financial statements under GAAP should show
a.a reduction in the carrying value of the asset $15,000 in current assets and a realized loss of $15,000 in other expenses and losses.
b.a reduction in the carrying value of the asset $15,000 in current assets and an unrealized loss of $15,000 in other comprehensive income.
c.a reduction in the carrying value of the asset of $15,000 in current assets and an unrealized loss of $15,000 in the equity section of the balance sheet.
d.a reduction in the carrying value of the asset of $15,000 in current assets and unrealized loss of $15,000 in other expenses and losses.
4.Under GAAP, unrealized gains on non-trading share investments should
a.be reported as other comprehensive income.
b.not be reported on the income statement or statement of financial position.
c.be reported as other gains on the income statement as part of net income.
d.be reported as other revenues and gains in the income statement as part of net income.
5.Under GAAP, the unrealized loss on trading investments should be reported
a.directly to equity bypassing the income statement.
b.as part of other comprehensive loss not affecting net income.
c.on the income statement reducing net income.
d.as part of other comprehensive loss reducing net income.