Greg Fannerson (ACI) Case Scenario

Greg Fannerson, CFA, is a financial analyst with Alchemy Consolidated Industries, Inc. (ACI). ACI is a U.S. corporation involved in several industry sectors and, in addition, has a significant portfolio of intercorporate investments. ACI follows U.S. GAAP when preparing its financial statements. Fannerson’s supervisor, Charles Wilmington, has requested that Fannerson provide an update on ACI’s existing equity investments. Fannerson has developed Exhibit 1, containing information about the companies.

Exhibit 1

ACI Inc. Portfolio A Equity Investments (amounts in millions)

In addition to the equity investments in Exhibit 1, Fannerson was asked to evaluate two recently acquired debt holdings, which have been classified as held-to-maturity. Information about these securities is shown in Exhibit 2.

Exhibit 2

ACI Inc. Portfolio B Debt Securities (amounts in millions)

Wilmington mentions that the economic circumstances regarding the two debt securities has deteriorated significantly and asked Fannerson’s opinion on how the way in which these securities had been classified affected ACI’s performance. Fannerson has gathered the following additional information:

• At time of purchase the market value of the net assets of Columbus were equal to their book values.

• The number of seats that ACI holds on the respective Boards of its’ equity investments is shown in Exhibit 3.

• De Soto is a joint venture between ACI and two other partners.

• Marco has a majority holder that exercises control over Marco’s operations.

• ACI has been unhappy with the performance of the Le Vaca investment for some time and has been attempting to divest its holding with no success.

• ACI does not classify equity securities as held-for-trading securities.

Exhibit 3

Seats on the Board held by ACI in its Investee Companies