The securities portfolio for Malibu Industries contained the following trading securities:

1. Assuming that all changes in fair value are considered temporary, what is the effect of the changes in value on the 2010 and 2011 financial statements? Give the valuation entries for these years, assuming that the market adjustment account has a $0 balance at the beginning of 2010.
2. Assume that at December 31, 2011, management believed that the fair value of the Sonoma Co. common stock reflected an €œother-than-temporary€ decline in the value of that stock. Give the entries to be made on December 31, 2011, under thisassumption.

Transcribed Image Text:

Securities (common stock) Brooks Co. Sonoma Co. Taylor Co. Initial Cost Fair Value Dec. 31, 2010 Fair Value, $15,000 12,000 24,000 $18.000 8,000 20,000 Dec. 31, 2011 $22,000 25,000 .. 5,000