Question

Dyckman Dealers has an investment in Thomas Corporation that Dyckman accounts for as a trading security. Thomas Corporation shares are publicly traded on the New York Stock Exchange, and the prevailing price on that exchange indicates that Dyckman's investment is worth $20,000. However, Dyckman management believes that the stock market is generally overvalued, and their analysis of the Thomas investment suggests to them that it is worth $18,000. Dyckman should carry the Thomas investment on its balance sheet at:

Answer 1

According to accounting standards, Dyckman Dealers must carry the Thomas Corporation investment on its balance sheet at the prevailing market price of $20,000, despite their belief that the market is overvalued.

Step-by-step explanation:

Dyckman Dealers has an investment in Thomas Corporation, which is accounted for as a trading security. Since the Thomas Corporation shares are publicly traded and have a current market value, they must be reported on the balance sheet at their fair market value.

Despite Dyckman management's belief in an overvaluation of the stock market and their own assessment suggesting a lower value, accounting standards require that the investment be recorded at the prevailing market price from a recognized stock exchange like the New York Stock Exchange. Therefore, Dyckman should carry the Thomas investment on its balance sheet at the market value of $20,000.