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Reporting and analyzing investments s a e 210 when a

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Reporting and Analyzing InvestmentsS-A E 210When a year-end adjustment is made to reduce the available-for-sale securities portfolio tomarket, what effect, if any, will the adjustment have on the balance sheet and the incomestatement?Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 3, AACSB: Communications, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:Communications, IMA: ReportingSolution 210There would be no effect on the income statement related to this adjustment. The unrealized losswould be reported as a reduction in the stockholders’ equity section of the balance sheet and theassets would be decreased by a credit balance in the Fair Value Adjustment—Available-For-Salevaluation account.S-A E 211(Ethics)High Country Stables, Inc., operates several dog-racing tracks throughout the United States.Since most facilities are outdoor tracks only, most of the cash receipts for High Country arereceived from April through October. These funds are usually invested in temporary, very liquidinvestments, such as stocks and bonds. Among the stocks purchased last year, was Vendable,Inc. a company specializing in automatic vending equipment.The company decided not to sell its Vendable stock at the end of last year, and has purchasedmore of the stock this year. The company intends to continue to purchase stock until it holdsenough to make a takeover bid for the company. The accountants have been instructed tocontinue to classify the investment as temporary until the takeover is accomplished, so that lessattention will be directed to it. (Presently, High Country has no long-term investment in stock atall.)Required:1.Is it ethical for High Country to attempt to take over another company? Explain.2.Is it ethical for High Country to leave its investment in the temporary investment category?Explain.Ans: N/A, LO: 3, Bloom: E, Difficulty: Easy, Min: 3, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:Communications, IMA: ReportingSolution 2111.Yes, High Country may attempt to "take over" or purchase another company. The means thatit uses to accomplish its goal must be ethical, and certainly building up a portfolio of the stockin question is ethical. Unethical takeovers are those in which a company is purchased for itsassets and "harvested," leaving employees without jobs, and possibly irreparably damaging acommunity.2.It is not ethical for the company to leave the stock in the temporary category if it no longermeets the criterion for a temporary investment. It would depend upon whether the companywas serious in its intention to purchase a controlling interest in Vendable. Since there is noevidence to the contrary, it appears that High Country's investment should be classified aslong-term.FOR INSTRUCTOR USE ONLYH-63

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