Question

Accounting for Marketable Equity Securities
Among the various responsibilities of the Chief Financial Officer (CFO) of the Amphlett Corporation was the management and oversight of the firm’s cash reserves. During the year, the CFO had invested some of the firm’s excess cash in what she thought were three undervalued stocks. All of the securities were classified as trading securities. At year-end, she reviewed how the portfolio of investments had done.

Investment	Cost Basis	Fair Value at Year-End
Bristol-Myers Squibb, Inc.	$50,000	$42,000
Titanium Metals, Corp	50,000	55,000
Zila, Inc.	50,000	80,000
	$150,000	$177,000

Required

Calculate the value that would be assigned to the portfolio of marketable equity securities on the balance sheet of The Amphlett Corporation at year-end under each of the following approaches:

a.	Cost
b.	Lower-of-cost-or-market
	Individual-security basis
	Portfolio basis
c.	Fair value

Answer 1

SOLUTION:

A) cost basis:

Cost Basis means the investment is recorded in balance sheet based on the cost at which it is acquired.

Total Cost = 50000 + 50000 + 50000 = 150000

Here it is 150,000

(B) Lower of cost or market:

individual security basis

It means we will consider the lower of cost or market value considering each investment independently.

Bristol	Lower of Cost $50,000 and Fair Value $42000	$42000
Titanium	Lower of Cost $50,000 and Fair Value $55000	$50000
Zila	Lower of Cost $50,000 and Fair Value $80000	$50000
	Total	$142000

Portfolio basis:

here we will the lower of cost or market considering overall portfolio.

Lower of Cost $150,000 and Fair Value $177000 = $150000

Hence it is $ 150000

(C) Fair value :

Fair Value is based on latest value of the investment.

Here we are given the fair value of $177000

Hence it is $177,000