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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Victoria Company has investments in marketable securities classified as trading and available-for-sale. At the beginning of the year, the aggregate market value of each portfolio exceeded its amortized cost. During the year, Victoria sold some securities from each portfolio. At the end of the year, the aggregate amortized cost of each portfolio exceeded its market value.

Victoria also has investments in bonds classified as held-to-maturity, all of which were purchased for face value. During the year, some of these bonds held by Victoria were called prior to their maturity by the bond issuer. Three months before the end of the year, additional similar bonds were purchased for face value plus 2 months’ accrued interest.

Required:

  1. 1. Explain how Victoria accounts for:
  2. a. sale of securities from each portfolio
  3. b. each equity securities portfolio at year-end
  4. 2. Explain how Victoria accounts for the disposition prior to their maturity of the long-term bonds called by their issuer.
  5. 3. Explain how Victoria reports the purchase of the additional similar bonds at the date of the acquisition.

1.

To determine

Explain the way in which Company V would account for the following:

(a) Sale of securities of each portfolio

(b) Each securities portfolio at the year end

Explanation

(a)

For the available-for-sale debt securities: During the time of sales, the difference between the selling price and the amortized cost is considered as the realized gain or loss and that will be included in the net income for the particular year. This should be recognized only when the sales takes place.

For trading securities: The change in selling price and the fair value that is represented in the recent balance sheet is a realized gain or loss and this would be included in the net income...

2.

To determine

Explain the way in which Company V would account for the disposition before the maturity of the long-term bonds called by their issuer.

3.

To determine

Explain the way in which Company V would report the purchase of additional bonds at the date of the acquisition.

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