Question

At December 31, year 1, Charter Holding Co. owned the following investments in capital stock of publicly traded companies (classified as available-for-sale securities).

		Cost	Current Market Value
L Brands, Inc. (5,000 shares: cost, $44 per share; market value, $52)	$	220,000		$	260,000
The Gap, Inc. (4,000 shares: cost, $42 per share; market value, $39)		168,000			156,000
	$	388,000		$	416,000

In year 2, Charter engaged in the following two transactions.

Apr.	10		Sold 1,000 shares of its investment in L Brands, Inc., at a price of $58 per share, less a brokerage commission of $100.
Aug.	7		Sold 2,000 shares of its investment in The Gap, Inc., at a price of $37 per share, less a brokerage commission of $150.

At December 31, year 2, the market values of these stocks were: L Brands, Inc., $67 per share; and The Gap, Inc., $37 per share.

e. Prepare the fair value adjusting entry required at December 31, year 2.

f-1. Calculate the amount of marketable securities in the balance sheet at December 31, year 2.

f-2. Calculate the amount of unrealized holding gain (or loss) in the balance sheet at December 31, year 2.

g. Illustrate the presentation of the net realized gains (or losses) in the year 2 income statement. Assume a multiple-step income statement and show the caption identifying the section in which this amount would appear.

Answer 1

Solution- Ar Dec 31, year 1, charter holding co.owned the Investments in Capital Shock of publicly traded Companies. Available - for-sale Securities die generally held for earning short-term profits & hence 9t should be vowed at fair value on reporting date. e) Fair value adjusting entry at Dec-31, year-2 Accounts Title & Explanation Debit Credit investment in L bronds Inc. 60,000 Unyelized gain on available for Sale 56000 - Securities investment in the gap inci L000 * To record on realized gaini on voluation of available for Sale Securities.

Calculations - investment in L brands incin * 5,000 shares, market value $52 of these af december 31, year 2, the market values Stocks L brands, inc. $ 67 * Al Apy 10, Soid 1.000 shares of its mvestment inl brands. i investment in L brands is =(5,000 -1000) * (67-52) =) (4,000) * (15) = 60,000 investment in the Gap inc * The gap, inc. 4,000 shares, market value is $ 39, Soid 2.000 Shares. [Aug 73 of its investment in the gap, Inc., at price of 37 . .: investment in the gap inc : (2.000-2000) * (39-37) : (2000) * (2) . 4,000

Cinseatized gain on AFS Securities 60,000 -6.000 ) 56,000 Secovities in balance sheet Amount of marketable at Dec -31, year 2 uoc 268,000 | Investment in į brands inc upoo shores a $67 S per Share] Gaping (2000 Shares at $ 37 pey Shore] Vaive of investment 72000 342.000 f2.) Amound of unrealized gain in balance sheet at Dec-31, year a un-Yealized gain on Lbrands in shares 60,000 исоо un-realized loss on the gap inc shares 56000 Net drealized gain

Calculation of Net Realized gain in yeas -2 income Slatement -> Realized gain on a brand inc: Shares -> (1000W 58.-100) -(1000* 52) =) ( 58,000-100) -(52,000) =) (57,900 ) - (52.000) is 5,900 → Realized Loss on the gap inc. Shares 3) (2000* 37-450) - 2000439 3) (74.000-150) - 78.000 => 73,850 - 78,000 - -4150 .Net Realized gain on Sale Of Shares = 5,900 -41150 -) 1,750 Realized. gain on L brands Realized Loss on The gap inc 5900 - LUSO Net Realized gain 1750