Exam 12: Investments

Sometimes companies change the extent to which they can significantly influence an investee, such that they have to change to the equity method or from the equity method of accounting for the investment. Required: Describe the adjustments necessary when a company (1) changes to the equity method from another method, and (2) when a company changes from the equity method to another method.

The current accounting standards require fair value reporting for trading securities and securities available for sale. Some accountants believe that the FASB was inconsistent when GAAP was issued requiring changes in the value of trading securities to be reported in the income statement and balance sheet, while changes in the value of securities available for sale are reported only in the balance sheet. Required: Evaluate the rationale for these two diverse reporting requirements for marketable securities. What arguments could be made to support each treatment?

Beresford Inc. purchased several investments in debt securities during 2018, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. -What balance sheet amount would Beresford report for the total of its investments in debt securities at 12/31/2017?