BCS,IncHas Trading and Investment Securities on Their Books AAssume That $3,000,000 of Trading Securities and $4,000,000 of Held-To-Maturity

question 74

Essay

BCS,Inc.has trading and investment securities on their books.They have bought and sold investments every month during the year.The ending balance in the accounts for the current year and the prior year are given below. $$\begin{array} { | l | r | r | } \hline & \text { Balance at 12/31/11 } & \text { Balance at 12/31/12 } \\\hline \text { Trading securities } & \$ 2,500,000 & \$ 3,400,000 \\\hline \text { Held-to-maturity securities } & \$ 5,000,000 & \$ 6,000,000 \\\hline\end{array}$$ a.Assume that $3,000,000 of trading securities and $4,000,000 of held-to-maturity securities were purchased during 2012.What is the value of securities sold during 2012 in each category?
b.What is the amount of the loss or gain if investments with an original cost of $1,000,000,and a market value of $1,300,000 at December 31,2011,were sold for $900,000 on December 15,2012?
c.If the market value of the trading securities was $4,000,000 at the end of 2011 and $2,000,000 at the end of 2012,what is the correct ending balance in the allowance account at the end of 2012?
d.Using the facts presented in part c,what is the impact on the income statement of recording the allowance account in 2012? Where will the adjustment appear on the income statement (what account and where on the income statement)?
e.Select the two most important assertions for the investment account and describe one substantive test you might use to verify that the assertions are valid.

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