Investments in Marketable Securities

[kathyc2]

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.

More like spoofing caller ID, IMO.

The majority of taxpayers, know that advances on LOC is not taxable income. For a preparer with 40+ years of experience to think so is rather disconcerting. It's natural as we age that our sharpness of thinking will likely decline. I certainly hope that if I get to the point that I forget the basics, someone will tell me that it's time to retire.

I'm still not clear why you want to know GAAP rules, but I hope that you are not advising business on accounting and financial statements that is different than tax basis.

[Anarchrist]

The multiple screen names weren't really the issue.

It was one of too many items she blew way out of proportion. The false assumptions she made were ridiculous.

[Maribeth]

[QUOTE=Snaggletooth;n309449]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.
[/QUOTE

Ron, there is an CPA auditor in my building and I asked him your question. It's been years since I have had to deal with GAAP and A&A issues so all of this stuff makes my head hurt. I believe that the issue is covered under ASC 320.

The change in market value is booked at the end of the year using a valuation account as a contra account. So on your balance sheet, for the first year, you would have on your balance sheet:

Investment in Exxon -- $50000
Less valuation account --- (5000)

On your income statement, you will have "Unrealized loss on stock $5000. This amount, of course, is a debit on your income statement.

For the second year, you adjust your value at the end of the year again. So your balance sheet looks like this:

Investment in Exxon ----- $50000
Add valuation account ----- 3000

On your income statement, you will have "Unrealized gain on stock $8000. This amount is a credit on your income statement.

On the equity section of your balance sheet, you will not close these "unrealized" transactions into your retained earnings. You will have another account in the equity section for "Accumulated other comprehensive loss or gain", which will show the accumulated balance of these transactions. At the end of the second year you will have a credit balance of $3000 in this account. ($5000 loss in the first year, plus $8000 gain in the second year).

Of course, for tax purposes, which is what we really all care about, these transactions are not reported, and become M-1 adjustments.

When you start to sell the stock, then you have to bifurcate the gain/loss between the "unrealized" and the "realized". People actually make good money coming up with schemes like this......

Maribeth

[Snaggletooth]

Thank you Maribeth, you actually addressed the entire scheme and took the time to do so.

I have repeatedly been questioned why I am so interested in GAAP. Most people take a couple different positions for me bringing GAAP into a tax forum:

1. As tax people we shouldn't be concerned with GAAP.
2. Some CPAs take the position that EAs shouldn't be tampering with GAAP, and are violating financial regulations, and are not knowledgeable enough to tampering with it.

I will take the time to address the question:

• Any tax preparer who prepares 1120s, 1065s, and 1120S and fails to understand or report the "book to tax differences" is failing to provide good service to the client.
• In the off-season I do write-up work for 4 CPA firms - two in Nashville, one in Tullahoma TN, and another in Huntsville, AL. CPAs tell me it is difficult to find people to do accurate write-up work and wanted to pass my name around. I can't take on any more work, and in five years have had the CPAs make only one correction to my work (PPP timing of forgiveness).
• One of the reasons I'm able to do write-up work is because I ask questions on this forum about GAAP - much to the disdain of some on this forum.

Also,for the record, the other forum on which I used to participate had many other people (maybe two dozen) incensed at me in addition to their primary monitor. I don't think anyone on that forum is disappointed that I don't post anymore. I do visit and read often. They have some good minds over there, some of whom post here as well.

[Lion]

You have a built-in support group of CPAs to ask about GAAP year round. Why come to a free tax site and ask EAs and other TAX preparers non-tax questions? Do you know if any of us prepare Forms 1120, 1065, or 1120-S? No one on this thread has "CPA" as part of their user name, but there might be CPAs on this message board. However, you have 4 entire CPA firms full of CPAs to discuss GAAP with!!

[Maribeth]

I tend to lurk on this forum and the Drake forum. I don't contribute much. But when I can, and I feel comfortable responding to a question, I do.

I am a CPA. However, I only got enough audit experience in order to get signed off, my whole career has been in tax. I do 1120, 1065, 1120S, 990, 1041, 709, and 1040's. Plus payroll and extensive write-up work. If I can help anyone with a question, please just ask.

[Snaggletooth]

You have a built-in support group of CPAs to ask about GAAP year round. Why come to a free tax site and ask EAs and other TAX preparers non-tax questions? Do you know if any of us prepare Forms 1120, 1065, or 1120-S? No one on this thread has "CPA" as part of their user name, but there might be CPAs on this message board. However, you have 4 entire CPA firms full of CPAs to discuss GAAP with!!

I rarely have to ask the CPAs that I work for in the offseason. And to be honest, the write-up work (as you probably know) is not a great deal more than advanced bookkeeping. Many bookkeepers do not grasp the concept of accrual accounting. Sometimes a firm will hire a family member to be a bookkeeper.

Can there be enough interest in a topic to ask a question?

[Uncle Sam]

Snaggletooth- stop being a pain in the butt on this board. Go back to the ATX people and bug them. Whatever you call yourself - Snaggletooth, Rex, Corduroy Frog, you create a nuisance.
I was thrown off the ATX board years ago because of you - jlkcpa gave me the "point" - I told her where she could shove it. You had a poster here provide you with an answer you were
looking for. Now, leave us alone.

[Lion]

A quick Google search gave dozens of message boards you can join re GAAP: https://www.12manage.com/methods_usgaap.html

https://blog.feedspot.com/accounting_forums/

[Snaggletooth]

Snaggletooth- stop being a pain in the butt on this board. Go back to the ATX people and bug them. Whatever you call yourself - Snaggletooth, Rex, Corduroy Frog, you create a nuisance.
I was thrown off the ATX board years ago because of you - jlkcpa gave me the "point" - I told her where she could shove it. You had a poster here provide you with an answer you were
looking for. Now, leave us alone.

Uncle Sam - we have a history, and we both know it. Enough from me. No more defending what I do or why.

FWIW - Why would either of us want to return to the ATX board??

[Snaggletooth]

A quick Google search gave dozens of message boards you can join re GAAP: https://www.12manage.com/methods_usgaap.html

https://blog.feedspot.com/accounting_forums/

A gracious thank you to Lion. As with others, we have had our differences, but you are a class lady.