Chapter 5

Short-Term Investments and Receivables

Short Exercises

(5 min.) S 5-1

1. A trading investment is always a current asset because the investor intends to sell the trading investment in the very near future — days, weeks, or only a few months. A current asset is to be sold within one year or within the company’s operating cycle if longer than a year.

2. Trading investments are reported at their current market value.

(10 min.) S 5-2

|BALANCE SHEET | |
| Current assets: | |
| Short-term trading investments, at market value... |$84,000 |
| | |
|INCOME STATEMENT | |
| Other revenue and gains (losses): | |
| Unrealized gain on investment…………………….... |$ 4,000* |

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*$84,000 − $80,000 = $4,000
(10 min.) S 5-3

|Unrealized Loss on Investment ($104,000 − $98,000) |6,000 | |
| Short-Term Investment……………………………….. | | 6,000 |
|Adjusted investment to market value. | | |
| | | | |
| | | | |
|BALANCE SHEET | |
| Current assets: | |
| Short-term trading investment, at market value……… |$98,000 |
| | | | |
|INCOME STATEMENT | | |
| Other revenue (loss): | | |
| Unrealized (loss) on investment………………………… |$ (6,000) |

(5 min.) S 5-4

Roose, the accountant, should not handle the company’s cash. With cash-handling duties, the accountant can steal cash and hide the theft by writing off a customer’s account receivable as uncollectible.

(5 min.) S 5-5

|1. |Uncollectible-Account Expense ($900,000 × .02)….. | 18,000 | |
| | Allowance for Uncollectible Accounts…………… | |18,000 |
| |