- •Reporting Category:
- •102. Jeremiah Corporation purchased securities during 2006 and classified them as securities available for sale:
- •Problems
- •Required:
- •Required:
- •Required:
- •Required:
- •117. Fkg Inc. Carries the following investments on its books at December 31, 2006, and December 31, 2007. All securities were purchased during 2006.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •123. Jackson Company engaged in the following investment transactions during the current year.
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Note b - short-term investments
- •133. Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •Required:
- •143. From time to time, debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change.
- •Required:
- •144. Discuss the following questions.
- •Required:
- •Required:
- •Required:
- •147. In its 2001 annual report to shareholders, Maytag Corporation included the following disclosures in its income statement and related footnotes:
- •Special Charges and Loss on Securities
147. In its 2001 annual report to shareholders, Maytag Corporation included the following disclosures in its income statement and related footnotes:
CONSOLIDATED STATEMENTS OF INCOME
-
Year Ended December 31
2001
2000
1999
(In thousands)
Loss on securities
(7,230)
(17,600)
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Special Charges and Loss on Securities
During the fourth quarter of 2001, the Company recorded special charges and loss on securities totaling $17.0 million, or $13.5 million after-tax. Special charges of $9.8 million, or $6.2 million after-tax, were associated with a salaried workforce reduction of approximately 250 employees. Cash expenditures for 2001 related to this charge were $3.7 million. Loss on securities of $7.2 million resulted from the write-down of the remaining investment in a privately held Internet-related company.
During the fourth quarter of 2000, the Company recorded special charges and loss on securities totaling $57.5 million, or $36.5 million after-tax. Special charges of $39.9 million, or $25.3 million after-tax, were associated with terminated product initiatives, asset write-downs and executive severance costs related to management changes. Loss on securities of $17.6 million, or $11.2 million after-tax, resulted from a lower market valuation of securities of TurboChef Technologies, Inc. and investments in privately held Internet-related Companies ….. The loss on securities charge of $17.6 million was non-cash.
Required:
Discuss the possible rationale behind the losses on securities reported by Maytag in 2000 and 2001.
Answer: As indicated in the footnote, Maytag held investments in securities of TurboChef Technologies. These may have been treated as trading securities, in which case reductions in their values would have been recorded as a loss against income in 2000. Alternatively, this loss could result from permanent impairments in value, even if these were not treated by Maytag as trading securities. In addition, Maytag had investments in privately held Internet-related companies. The portion of the 2000 and 2001 losses on securities related to these investments seem to have resulted from permanent impairments. Note that the footnote disclosure indicates these were non-cash losses, thereby ruling out these losses having occurred as a result of Maytag selling the securities at a loss.
Learning Objective: 3 Level of Learning: 3
Spiceland/Sepe/Tomassini,
Intermediate Accounting, Fourth Edition