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Qtip Corp. owns stock in Maxey Corp. The investment represents a 10 percent interest, and Qtip is unable to exercise significant influence over Maxey....
Qtip Corp. owns stock in Maxey Corp. The investment represents a 10 percent interest, and Qtip is unable to exercise significant influence over Maxey. The Maxey stock was purchased by Qtip on January 1, 1999, for $23,000. The stock consistently pays an annual dividend to Qtip of $2,000. Qtip classifies the stock as available-for-sale. Its fair value at December 31, 2004, was $21,600. This amount was properly reported as an asset in the balance sheet. Due to the development of a new Maxey product line, the market value of Qtip’s investment rose to $27,000 at December 31, 2005. The Qtip management team is aware of the provisions of SFAS No. 115. The possibility of changing the classification from available-for-sale to tradin is discussed. This change is justified, the managers say, because they intend to sell the security at some point in 2006 so that they can realize the gain.Discuss the role that managerial intention plays in the accounting treatment of equity securities that have a readily determinable fair value.You can use this as a referenceFinancial Accounting Theory and Analysis, 8eChapter 10: Long-Term Assets II: Investments and IntangiblesISBN: 0471652431 Author: Richard G. Schroeder, Myrtle W. Clark, Jack M. Catheycopyright © 2005 John Wiley & Sons, Inc.
