B&L, Inc., located at 3200 College Avenue, Davie FL 33314, is a publicly traded firm that offers various business services. In 2015 it started offering financial services. As of December 31, 2015, B&Ls fiscal year-end, it held three investments totaling $70 million, an amount it considers material. Details regarding the breakdown of these investments are listed below. B&L is your client and Warren Gordon is the President of B&L. You are a newly hired staff member of FAU, Inc., an accounting firm located at 777 Glades Road, Boca Raton, FL 33431. Because Warren is unfamiliar with the proper accounting treatment regarding investments in debt and equity securities according to United States Generally Accepted Accounting Principles (US GAAP), he has hired FAU, Inc. to explain the accounting treatments specified by US GAAP.
Your firm has delegated to you the task of determining the treatment of investments, and has asked that you prepare a four (4) page typed memo (not handwritten, 1.5 spacing — not double spaced), including a works cited page (the 4th page of your memo should be designated as the works cited page; use MLA Format for your works cited page) to the client explaining
1.The standards that govern US GAAP treatment of investments, comprehensive income, and other comprehensive income.
2.How to classify the investments held at year-end, assuming B&L lacks significant influence.
3.How and where unrealized holding gains / losses are reported.
4.The required financial statement presentation and note disclosures regarding investments.
In addition, you are to formulate a question to ask the client that would help you determine the different types of investment transaction(s) in which it could be involved, and include that in the conclusion of your memo.
Information regarding the investments held at 12/31/15 that particularly concerns Warren is as follows:
On January 1, 2015, B&L, Inc. purchased, at face value, $20 million of 10 year, 10% bonds of Techo, Inc. Interest is paid semi-annually on June 30th and December 31st. Management has the ability and plans to hold these bonds until they mature.
On September 30, 2015, B&L, Inc. purchased, as a long-term investment, 500,000 shares of Medex common stock at a cost of $25,000,000.
On December 15, 2015, B&L, Inc. purchased 1 million shares of Cycam common stock at a cost of $25,000,000. Management plans to sell this investment in early 2016.
The year-end market prices of the Medex and Cycam common stock were $55 and $27 per share, respectively. The fair value of the Techo bond investment was $16 million.
This memo is expected to be professional and informative. Remember the purpose of the memo and the audience that it is addressing when you write it.
Follow the proper format for a memo, as presented in May & May, Effective Writing: A Handbook for Accountants. 10th edition. I will allow sub-headings in your memo.
Helpful Hint: Remember to include headings, a proper introduction that previews your headings, and a conclusion. When citing sources within your memo and preparing a works cited page, please follow the formats illustrated in the May & May text on pages 162-164. Please be sure to prepare your memo according to the proper format for a memo, as presented in May & May, Effective Writing: A Handbook for Accountants. You may include tables and / or vertical enumerated points to illustrate the information you are providing to your client.
IMPORTANT: You must turn in by uploading your writing assignment via blackboard by clicking on the View/Complete link under Writing Assignment Submit provided in blackboard.
NOTE: This is an individual exercise. You may not collaborate with anyone on this assignment! If your memo is substantially similar (e.g., very similar wording and phrasing) to a memo submitted by another student, I will consider the similarity as evidence that you collaborated with that individual. In that case, both you and the other student will receive zero (0) points on this assignment.
IMPORTANT WARNING: If your writing assignment score includes 3 or more of the student learning outcomes in the Developing category, most likely you will fail this assignment.
Research Hints
Effective July 1, 2009, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the official guidance regarding GAAP. You can locate the Codification at http://aaahq.org/ascLogin.cfm
Note: You will be required to enter the following User Name and password to gain access to the Codification.
User Name: AAA51093
Password: 57HfzME
There is a tutorial on the FASB Codification webpage for those who want further details on navigating the website.
Note: You are to use the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) as one of your main source(s) for this writing assignment. Failure to use the FASB ASC will result in you not being awarded full points on your writing assignment, which may result in your failing the assignment. See FASB ASC Citing Hints on the next page.
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