Please answer questions 1-4 using the following: Kirk Company acquired shares in
ID: 2488929 • Letter: P
Question
Please answer questions 1-4 using the following:
Kirk Company acquired shares in the equity of both Company A and Company B. We have the following information from the public markets about Company A and Company B’s investment value at the time of purchase and at two subsequent dates:
Security Cost T = 1 T = 2
A $950 $850 $900
B 250 180 350
(1) Kirk Company will report what initial value of its portfolio assuming that they are all marketable equity securities?
(2) If we assume the investments are equity securities, how will the company recognize the investment at T = 1 on their balance sheet and income statement if the securities are considered available-for-sale and if they are considered trading securities?
Available for Sale
Income Statement:
Balance Sheet:
Trading Securities
Income Statement:
Balance Sheet:
(3) What is the carrying value of the portfolio at T = 2?
(4) Assume that Security A and B are both debt securities classified as securities held to maturity. At T = 2, Kirk will report the carrying value of its MES account as (1 pt)?
Explanation / Answer
1 Kirk Company will report 1200 (950 + 250) as initial value of its portfolio assuming that they are all marketable equity securities 2 Available for sale Income statement : No amount in the income statement balance sheet: Securities avialble for sale = 850 + 180 = 1030 since the amount is recorded at market value. Unrecognized loss of 170 = (850-950) + (180-250) Trading securities Income statement: unrealized losses = 170 balance sheet: Securities avialble for sale = 850 + 180 = 1030 since the amount is recorded at market value. Unrecognized loss of 170 = (850-950) + (180-250) 3 Carrying value of the portfolio at T-2 would be 900 + 350 = 1250 4 Security A and B are both debt securities classified as securities held to maturity. At T = 2, Kirk will report the carrying value of its MES account as 950+250 = 1200. As these are the securities which company have an intent to hold till maturity and are carried at amortized cost which is 1200 and on this no gains or losses are recognized till disposition.