Question

On its December 31, 2008 balance sheet, the Noble Corporation reported the following as investments in long-term marketable equity securities. Investment in long-term marketable equity securities at market $300,000 Less Adjustment to reflect decline in market value of marketable equity securities 28,000 At December 31, 2009, the market valuation of the portfolio was $298,000. Noble does not elect to use the fair value option of reporting financial assets. What should Noble report on its 2009 Statement of Income as a result of the increase in the market value of the investments in 2009?

Answer 1

Since Noble has decided not to elect the fair value option for presenting long term investments, the valuation allowance of $ 28,000 created shall be reversed, in order to present the long term investments at cost.

However, the market value is less than the cost, hence an additional allowance of $ 2000 (300000-298000) shall be made.

Noble shall report
Long term marketable equity securities at cost $ 300,000
(-) Allowance for decline in market value ($ 2,000)
Net $ 298,000