[Jasminekoko]

Hi again,

I am so confused at this question. The bond securities in this problem are classified as HTM? If it is, then we have to value it at amortized cost but 105,000 is not the number I am looking for, it should have been 92,000. According to the question, bond securities should be classified as AFS because its intent to sell in the near future. So we use the FV for the bond of which 105,000. Please someone clarify. I’d much appreciate it.

At year-end, Rim Co. held several investments with the intent of selling them in the near term. The investments consisted of $100,000, 8%, 5-year bonds purchased for $92,000, and equity securities purchased for $35,000. At year-end, the bonds were selling on the open market for $105,000 and the equity securities had a market value of $50,000. What amount should Rim report as trading securities in its year-end balance sheet?

A. $50,000

B. $127,000

C. $142,000

D. $155,000

The correct answer is D.

Marketable debt (other than those intended to be held until maturity) and marketable equity securities are reported at fair value in the balance sheet. The exceptions are marketable debt securities that a company plans to hold to maturity (reported at amortized cost) and marketable equity securities that provide the company the ability to significantly influence the investee (equity method required) or to control the investee (consolidation required).

Marketable securities must be classified as held-to-maturity (debt securities only in this category), available-for-sale securities, and trading securities. Accounting for held-to-maturity securities does not report fair value in the balance sheet or fair value changes in the income statement. Available-for-sale securities are reported at fair value in the balance sheet, but changes in fair value are reported as other comprehensive income, not included in the income statement. Trading securities (specified here) are reported at fair value in the balance sheet, and changes in fair value are reported in other income in the income statement.

[Anonymous]

Nothing mentioned in the problem implies that the securities are held to maturity.

Holding securities to sell them in the near term implies that the securities are trading securities. The bonds are not available for sale securities due to the first sentence and the lack of information within the question to suggest it is anything but a trading security. The second sentence is a garbage sentence that can be ignored for the most part. The only use the second sentence would serve would be to calculate the unrealized gain on securities.

[Jasminekoko]

Thank you, I got it. It didn't could not be AFS because of their intention to sell in near term.

Thanks so much CPA Chasing 1.

[youngfaye]

Hi, I am confused with this question too. And I understand both the bond the equity security should be considered trading securities. But my question is since the bond had been sold, why would the balance sheet include the value of the bond. My answer to this question is $50,000, instead of $105,000. Can someone help me with this? Thank you very much.

AUD - 94
BEC - 85
FAR - 91
REG - 90

Hang in there!

[Mike J]

Nothing was sold.

Just like on the job, the CPA exam will throw a lot of data and superfluous information. You have to dig around the useless bits and interpret what you given.

Here, I believe you were confused by the following phrase: “At year-end, the bonds were selling on the open market”. Nothing was actually sold as of yet.

AUD - 90
BEC - 79
FAR - 77
REG - 77

They don't trust JUST ANYBODY to count beans

[Author]

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