Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare the 2012 year-end adjusting entries for the accounts that are valued by the â€œfair valueâ€ rule for financial reporting purposes. Thomas has gathered the following information about Brooksâ€™s pertinent accounts.
1. Brooks has trading securities related to Delaney Motors and Patrick Electric. During this fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these shares currently have a market value of $1,600,000. Brooksâ€™ investment in Patrick Electric has not been profitable; the company acquired 50,000 shares of Patrick in April 2012 at $20 per share, a purchase that currently has a value of $720,000.
2. Prior to 2012, Brooks invested $22,500,000 in Norton Industries and has not changed its holdings this year. This investment in Norton Industries was valued at $21,500,000 on December 31, 2011. Brooksâ€™ 12% ownership of Norton Industries has a current market value of $22,225,000.
For both classes of securities presented above, describe how the results of the valuation adjustments made to reflect the application of the â€œfair valueâ€ rule would be reflected in the body of and notes to Brooksâ€™ 2012 financial statements. (Refer to Problem 17-8.)