Temporary and “Other than Temporary” Changes in Value
The securities portfolio for Hill Top Industries contained the following trading securities:
|
Securities |
Initial |
Market Value, |
Market Value, |
|
(common stock) |
Cost |
Dec 31, 2007 |
Dec 31, 2008 |
|
Randall Co |
$10,000 |
$12,000 |
$15,000 |
|
Streuling Co |
7,000 |
4,000 |
2,000 |
|
Santana Co |
21,000 |
18,000 |
22,000 |
1. Assuming that all changes in fair value are considered temporary, what is the effect of the changes in value on the 2007 and 2008 financial statements? Give the valuation entries for these years, assuming that the market adjustment account has a $0 balance at the beginning of 2007.
2. Assume that at December 31, 2008, management believed that the market value of the Streuling Co. common stock reflected an “other than temporary” decline in the value of that stock. Give the entries to be made on December 31, 2008, under this assumption.