QUESTION #13 SECURITY VALUATIONS PPP INC made an investment in Rabbit Company stock in the amount of $525,000 on 10/1. In addition, it paid a transaction fee of $22,000. Its intent when acquiring this stock was to increase ownership in the supplier in order to guarantee right of first delivery of needed inputs for production. By 12/31 however, the company had incurred some operating difficulties and the price of the stock dropped and the fair value at balance sheet date was $392,000. (1) In what balance sheet account and category would this investment purchase by reported? (2) What is the reported value on the date of issuance? (3) What is the balance sheet value reported at year end? (4) What other financial statement element is reported? (5) If the stock rebounds the following year to $399,000, what financial transaction would be recorded? (6) Assume that instead of control over a supplier, the company merely acquired the security as a cash management tool; what answers to the questions above change? (7) Assume that the company has purchased debt securities in the amount of $118,000 reflecting a premium paid to acquire at the beginning of this year. The end of year value has increased so that the current fair value of the securities is $128,000. What balance sheet information and income statement data is reported (including the amount) assuming that the bonds were purchased: (a) As hold to maturity securities (b) Available for sale securities QUESTION #13 SECURITY VALUATIONS PPP INC made an investment in Rabbit Company stock in the amount of $525,000 on 10/1. In addition, it paid a transaction fee of $22,000. Its intent when acquiring this stock was to increase ownership in the supplier in order to guarantee right of first delivery of needed inputs for production. By 12/31 however, the company had incurred some operating difficulties and the price of the stock dropped and the fair value at balance sheet date was $392,000. (1) In what balance sheet account and category would this investment purchase by reported? (2) What is the reported value on the date of issuance? (3) What is the balance sheet value reported at year end? (4) What other financial statement element is reported? (5) If the stock rebounds the following year to $399,000, what financial transaction would be recorded? (6) Assume that instead of control over a supplier, the company merely acquired the security as a cash management tool; what answers to the questions above change? (7) Assume that the company has purchased debt securities in the amount of $118,000 reflecting a premium paid to acquire at the beginning of this year. The end of year value has increased so that the current fair value of the securities is $128,000. What balance sheet information and income statement data is reported (including the amount) assuming that the bonds were purchased: (a) As hold to maturity securities (b) Available for sale securities
