Assume you are an auditor and are concerned about how a client is reporting its marketable securities. You know that under certain circumstances marketable securities must be reported at market value. In addition, you realize that if the marketable securities are classified as trading securities, any unrealized gains are shown on the income statement while unrealized gains on available- for- sale securities are disclosed in the owners’ equity section of the balance sheet. Your client has recently reclassified a large amount of marketable securities from available- for- sale to trading securities. This reclassification increased its current ratio from 1.9 to 2.3. The company has a large loan outstanding that requires a current ratio of 2.0. How will you determine if the securities are correctly classified? How will the various stakeholders be affected by your decision?
Answer to relevant QuestionsKeys, Inc., compared the cost of its marketable securities to their market value at the end of 2010. This comparison follows: Management would like to classify these securities as available- for- sale and, therefore, report ...Explain the difference between the direct and indirect formats for presenting the statement of cash flows. Does the amount shown on the statement of retained earnings always equal the amount shown on the statement of cash flows for dividends? Why or why not? Ruchala had $ 54,900 in its Equipment account at the beginning of 2010. The beginning balance of Ac-cumulated Depreciation— Equipment was $ 9,000 at that time. During 2010, Ruchala recorded depreciation expense of $ 23,500 ...Burkhart Enterprises wants you to prepare a spreadsheet to answer the following questions: A. Purchases (net of discount) of inventory were $ 500,000 during the period. The beginning balance of accounts payable was $ ...
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