Assume that the Pierce, Fenner Corp. owns stocks in other companies. Pierce, Fenner is holding these companies for short-term investment purchases, and hopes that the values of these stocks will rise. Here is some information on the market value of its stock holdings:

A. Under GAAP and IFRS, companies are supposed to record their investments in marketable securities at fair value. The change in value of short-term holdings in marketable securities is shown as part of net income. What is the impact of the change in fair value during the year on Pierce, Fenner’s:

a. Assets

b. Liabilities

c. Equity

d. Net income.
B. Pierce, Fenner would really like to avoid showing that it lost money on the stock of Gamma. Can it sell the stock on December 31 to avoid showing the loss? Explain your answer.
C. Pierce, Fenner would like to show as much income as possible. Can it maximize its income for the year by selling the Alpha, Beta and Delta stocks, and holding onto the Gamma stock? Explain your answer.

Transcribed Image Text:

Jan. 1, Year 1 Dec. 31, Year 1 Alpha Corp. stock 20,000 25,000 Beta Corp. stock 24,000 29,000 Gamma Corp. stock 10,000 1,000 Delta Corp. stock 17,000 20,000 Totals 71,000 75,000