Question

Stoll Co.'s long-term available-for-sale portfolio at the start of this year consists of the following.

Available-for-Sale Securities	Cost			Fair Value
Company A bonds	$	535,300		$	490,000
Company B notes		159,380			154,000
Company C bonds		662,750			640,940

Stoll enters into the following transactions involving its available-for-sale debt securities this year.

Jan.		29		Sold one-half of the Company B notes for $79,200.
July		6		Purchased bonds of Company X for $126,600.
Nov.		13		Purchased notes of Company Z for $267,900.
Dec.		9		Sold all of the bonds of Company A for $515,000.

The fair values at December 31 are B, $81,000; C, $610,000; X, $118,000; and Z, $278,000.

3. What amount of gains or losses on transactions relating to long-term investments in available-for-sale debt securities does Stoll report on its income statement for this year?

Answer 1

Ans. Gain or loss from the Securities which is available for sale should be reported in the other comprehensive income or loss once the same is realized on the sale of such securities is reported in the income statement till the time unrealized gain or loss recognized under other comprehensive income or loss which will be shown under balance sheet.

Calculation of Gain or loss on transactions relating to long term investment in available for sale which will report income statement (in $)

1. Selling value of company B notes half =   79200

Less: cost of purchase (159380/2) = 79690

Loss on sale of company B notes       = (490)

2. Selling value of company A bond          = 515000

Less: cost of purchase                            = 535300

Loss on sale company B bond                 = (20300)

Total Loss company should report in Income statement (490+20300) = -20790

Securities available for sale should be reported on its fair value , on that appreciation or depreciation should be reported seprately on other comprehensive income or loss under the balance sheet.