BCS has provided the auditor with the following information regarding their investment accounts: At 12/31/2011, Trading securities $400,000, Available-for-Sale Securities $500,000, Held-to-Maturity Securities $1,500,000. At 12/31/2012, Trading Securities $600,000, Available-for-Sale Securities $350,000, Held-to-Maturity Securities $2,000,000. Additional information: The market value of the trading securities was $450,000 on December 31, 2011 and $475,000 on December 31, 2012; the market value of the available for sale securities was $600,000 on December 31, 2011 and $250,000 on December 31, 2012.
a. What is the proper valuation for the trading and available-for-sale securities on 12/31/11 and 12/31/12? (What value will appear on the balance sheet for these securities?)
b. The trading securities held by the company at the end of 2011 were sold in 2012 for $450,000. What was the gain or loss recognized on the sale? Prepare the journal entry to record the sale.
c. What is the impact on the income statement in 2011 and 2012 of holding these investment securities (show your calculation).
d. How would you audit the balance in the held-to-maturity securities at the end of 2012? What is the appropriate valuation base for these securities?
e. What is the impact of the held-to-maturity securities on the income statement for 2012?