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Investments in Marketable Securities

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    #1

    Investments in Marketable Securities

    in 2021, ABC company buys 100s of Exxon stock for $50.00. Investment $5000.00.
    End of 2021, value has slipped to $45.00. Carrying value is now $45,000.00. End of 2021, company writes off $5000 as an investment loss.

    Fast forward to 12/31/2022. Exxon is now trading at $53.00. Which of the following is true according to GAAP?

    a. Exxon is carried on its books at its current value, so 2022 shows investment income as $8,000.
    b. Marketable securities can always be written down, but never written up, so there is no investment income in 2022. Investment is continued to be carried at $45,000.
    c. Previous losses can be recovered, but only to the extent of original price paid. so 2022 shows investment income as $5,000.
    d. None of the above.
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    #2
    Cost basis is always carried on the books. Increases and decreases are only notational notes. Mark to Market should not be used on books and then carried over to tax return.
    This post is for discussion purposes only and should be verified with other sources before actual use.

    Many times I post additional info on the post, Click on "message board" for updated content.

    Comment

      #3
      "Mark to Market should not be used on books"

      Not directly related to the OP question, but I prepared an investment partnership return for a few years. They most definitely used mark to market for book accounting, which resulted in a book to tax adjustment every year. Who says you can't use Mark to Market for your books (beside you)?
      "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

      Comment

        #4
        Your example is the exception only you would point out. Regular businesses do not use Mark to Market and since the OP never mention your example, I ask you to get on track with the question.
        This post is for discussion purposes only and should be verified with other sources before actual use.

        Many times I post additional info on the post, Click on "message board" for updated content.

        Comment

          #5
          It appears like wisdom has entered the discussion, and I am always thankful for that.

          The purpose of my question is to arrange for book-to-tax differences. I am not interested in GAAP for any other reason.

          The question is posed from the standpoint of a company which is NOT an investment company such as RR refers.

          Simply answering the question will tell me all I wish to know.

          Comment

            #6
            Originally posted by Snaggletooth View Post
            I am not interested in GAAP for any other reason.
            You basically asked the same question several months ago under your alter ego. If you are preparing a tax return from financial statements that are GAAP compliant, do you know what questions to ask and how to prepare workpapers for the timing differences for such items as allowance for doubtful accounts, accrued bonus, vacation pay, property taxes, etc?

            Comment

              #7
              Amazed that out of all the responses, no one ventured to simply answer the question.

              Comment

                #8
                'simply answer the question.'

                Well, it is a tax forum, not an accounting forum. I'm sure I was exposed to GAAP back when I got my MBA, but I never have to pay any attention to it in my practice, so don't know much about it specifically.
                "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

                Comment

                  #9
                  Originally posted by Snaggletooth View Post
                  Amazed that out of all the responses, no one ventured to simply answer the question.

                  It should be obvious that if something is showing on books that is not allowed for tax, you have a book to tax difference. As I previous asked, if you are working from GAAP compliant financials and you don't know what to look for and ask, chances are you are preparing a tax return that is not accurate.

                  Comment

                    #10
                    If you really want to know the accounting under GAAP you can read this: https://materialaccounting.com/artic...thods-us-gaap/

                    Comment

                      #11
                      Originally posted by Snaggletooth View Post
                      Amazed that out of all the responses, no one ventured to simply answer the question.
                      Actually two people answered. Just because the answer isn't how you want it, doesn't mean it isn't an answer.
                      "Taxation is the price we pay for failing to build a civilized society." ~ Mark Skousen

                      Comment

                        #12
                        Anarchrist you are technically correct. Bob W came the closest, and actually did answer, although not in the same format.

                        Kathy2 provided a link, which I interpret as a sincere attempt to help. The reading was informative, although drifting quickly into the "equity" method, which is a different treatment than Marketable Securities. 100 shares of Exxon is hardly a significant percentage of ownership.

                        Thanks to all who participated.

                        FWIW, alternate names are not my choice - I get knocked off occasionally and have to re-register. It is not an attempt to ask the same question and hide my identity. My name is Ron Jordan - come to Manchester, TN - anyone in town can find me.

                        Comment

                          #13
                          Originally posted by Snaggletooth View Post
                          FWIW, alternate names are not my choice
                          Are you the person the moderator on the ATX Community board ranted and raved about having different user names a year or two ago? Her moderation is pretty heavy handed but her complaints there really took the cake.

                          "Taxation is the price we pay for failing to build a civilized society." ~ Mark Skousen

                          Comment

                            #14
                            Originally posted by Anarchrist View Post
                            Are you the person the moderator on the ATX Community board ranted and raved about having different user names a year or two ago? Her moderation is pretty heavy handed but her complaints there really took the cake.
                            The multiple screen names weren't really the issue. He started it on the ATX forum stating that cash advance on a LOC was taxable income. Multiple people told him that was incorrect. Then he came to this board complaining that: "I was even told that increasing cash does not affect taxable income. Even for a cash basis taxpayer." The initial post here left out the part that the cash was a LOC advance. Judy took umbrage that he was implying he received incorrect info on the other board. Can't say I blame her. The arguing that it is taxable income went on over two weeks with every single person correctly saying that a LOC advance is not taxable income.

                            Comment

                              #15
                              All of Kathy's statements are correct.

                              I took issue with how an increase in cash due to a loan resulted in no taxable income, but have since found out that the loan itself is considered cash. Many people corrected me, but the fallout was so hostile that I have not posted on the other board since 12/31/21. Judy was not the only one who was incensed, and my prior experience with her had not been bad.

                              And there was an implication that the use of several names causes suspicion that I am trying to hide something by asking the same question under different names. As if the lock on the front door is Schlage, and the lock on the bathroom is Master means you are a thief.

                              I am not the most popular kid on the block. But if anyone believes I intentionally make false statements, please let me hear from you.
                              Last edited by Snaggletooth; 02-15-2023, 12:19 PM.

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