On January 1, 2014, Macon Manufacturing borrows $500,000 and uses the money to purchase corporate bonds for
Question:
Required:
1. Mason is required to use fair value accounting for the bond investment. Prepare the journal entry to record the investment purchase on January 1, 2014, and the fair value adjustments required at the end of each quarter: March 31, June 30, September 30, and December 31.
2. Suppose that Mason uses conventional amortized cost accounting for the loan. The loan principal is due in five years. Ignore interest on the loan to simplify the problem. What will be the loans carrying value at the end of each quarter?
3. Suppose that instead Mason elects to use the GAAP fair value option permitted by FASB ASC Topic 825 for the loan. What dollar impact will this change have on reported profits each quarter?
4. Which accounting approachamortized cost or fair valuedo you believe Mason should use for the loan?Why?
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
Step by Step Answer:
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon