Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 29

Trading and held-to-maturity securities. BCS, Inc. has trading and held-tomaturity securities on its books. It has bought and sold investments every month during the year. The ending balance in the accounts for the current year and the prior year follow.

a. Assume that $3,000,000 of trading securities and $4,000,000 of held-to-maturity securities were purchased during 2012. What is the cost of securities sold during 2012 in each category
b. What is the amount of the loss or gain if investments with an original cost of $1,000,000 and a market value of $1,300,000 at 2011 year-end were sold for $900,000 on December 15, 2012
c. If the market value of the trading securities was $4,000,000 at the end of 2011 and $2,000,000 at the end of 2012, what is the correct ending balance in the allowance account at the end of 2012
d. Using the facts presented in part (c), what is the impact of recording the allowance account in 2012 on the financial statements
e. Select the two most important assertions for the investment account, and describe one substantive test for each assertion that you might use to verify that the assertion is valid.