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Chapter 13: Q15 (page 658)

Distinguish between the accounting treatment for marketable versus nonmarketable equity securities.

Short Answer

Expert verified

The difference between Marketable securities and non-marketable securities is the price at which both are recorded.

Step by step solution

01

Definition of marketable securities

Marketable securities are securities that can be sold very easily.

02

Definition of non-marketable securities

Non-marketable securities are securities that cannot be sold easily. It is also very difficult to buy these securities.

03

Difference between treatment of marketable and non-marketable equity securities

Difference between marketable securities and non-marketable securities:

a. It is very easy to buy marketable securities, whereas it is very difficult to buy non-marketable securities.

b. It is very easy to sell marketable securities, whereas it is very difficult to sell non-marketable securities.

c. Marketable securities are on their fair value, whereas non-marketable are recorded on their cost.

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Under what conditions should a provision be recorded?

(Fair Value Measurement) Presented below is information related to the purchases of common stock by Lilly

Company during 2017.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \(100,000 \) 80,000

Investment in Lee Corporation stock 250,000 300,000

Investment in Woods Inc. stock 180,000 190,000

Total \(530,000 \)570,000

Instructions

(Assume a zero balance for any Fair Value Adjustment account.)

(a) What entry would Lilly make at December 31, 2017, to record the investment in Arroyo Company stock if it chooses to

report this security using the fair value option?

(b) What entry(ies) would Lilly make at December 31, 2017, to record the investments in the Lee and Woods corporations,

assuming that Lilly did not select the fair value option for these investments?
See all solutions

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