The following questions dealing with investments are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants (www.imanet.org) provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.
1. An investment in available-for-sale securities is valued on the balance sheet at
a. The cost to acquire the asset.
b. Accumulated income minus accumulated dividends since acquisition.
c. Fair value.
d. The par or stated value of the securities.
Questions 2 and 3 are based on the following information concerning Monahan Company's portfolio of debt securities at May 31, year 2 and May 31, year 3. All of the debt securities were purchased by Monahan during June, year 1. Prior to June, year 1, Monahan had no investments in debt or equity securities.
2. Assuming that the above securities are properly classified as available-for-sale securities under U.S. GAAP, the unrealized holding gain or loss as of May 31, year 3 would be
a. recognized as an $8,005 unrealized holding gain on the income statement.
b. recognized in accumulated other comprehensive income by a year-end credit of $8,005.
c. recognized in accumulated other comprehensive income by a year-end debit of $8,005.
d. not recognized.
3. Assuming that the above securities are properly classified as held-to-maturity securities under U.S. GAAP, the unrealized holding gain or loss as of May 31, year 3 would be
a. recognized as an $8,005 unrealized holding gain on the income statement.
b. recognized in accumulated other comprehensive income by a year-end credit of $8,005.
c. recognized in accumulated other comprehensive income by a year-end debit of $8,005.
d. not recognized.