Carrying value of Clay Company’s marketable securities
Clay Company owns the following marketable securities, all of which were purchased at the beginning of 2021:
Firm | # Shares Owned by Clay | Ownership Held by Clay | Clay’s Cost | Market Value (12/31/21) | Annual Dividend | Total 2021 Earnings |
A | 50,000 | 15% | €40.00 | €46.00 | €0.75 | €50,000 |
B | 100,000 | 25% | €10.00 | €12.00 | €0.30 | €100,000 |
C | 75,000 | 10% | €25.00 | €24.00 | €0.60 | €80,000 |
Clay Company follows International Financial Reporting Standards (IFRS).
- If the securities of Firm A were reported at fair value through profit and loss and the securities of Firm C were reported at fair value through other comprehensive income, the carrying (book) value of Clay’s marketable securities at the end of 2021 was:
a. €5,095,000
b. €5,100,000
c. €5,300,000
Related: (Solution) Marketable Securities’ Total Contribution to Pretax Income
Solution
To determine the carrying (book) value of Clay Company’s marketable securities at the end of 2021, we will analyze the carrying values for each firm based on their classification under IFRS.
The Securities
- Firm A: Reported at Fair Value Through Profit and Loss (FVPL)
- Firm B: Reported using the Equity Method
- Firm C: Reported at Fair Value Through Other Comprehensive Income (FVOCI)
Step-by-Step Calculations
Firm A: Carrying Value
- Calculate Market Value at Year-End:
- Market Value per Share: €46.00
- Number of Shares Owned: 50,000
Market Value=Market Value per Share×Number of Shares=€46×50,000=€2,300,000 - Carrying Value for Firm A:
- Since Firm A is reported at FVPL, its carrying value is equal to its market value at year-end:
Carrying Value Firm A =€2,300,000
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