How are securities measured at acquisition?

Answer 1

MEASUREMENT OF SECURITIES AT ACQUISITION

A firm initially records the purchase of marketable securities at acquisition cost, which includes the purchase price plus any commissions, taxes, and other costs incurred. However, U.S. GAAP and IFRS exclude transactions costs from the acquisition cost of trading securities, treating such costs as expenses of the period.

For example, if a firm acquires securities classified as marketable securities for $10,000, the entry is as follows:

Marketable Securities........................................................... 10,000
Cash......................................................................... 10,000

To record the acquisition of marketable securities costing $10,000 .

The investor recognizes dividends on equity securities as revenue when the firm's board of directors declares dividends and recognizes interest on debt securities when interest accrues over time. Assume that a firm holds equity securities earning $250 through dividend declarations and debt securities earning $300 from interest earned and that it has not yet received these amounts in cash. The entry is as follows:

Dividends and Interest Receivable............................................ 550
Dividend Revenue.................................................................... 250
Interest Revenue......................................................................... 300

To record dividends and interest revenue from Marketable Securities.