Question

ACCOUNTING FOR MARKETABLE SECURITIES: As of December 31, 2018, Company A has the following investments in marketable securities: Acquisition Cost December 31, 2018 Market Value Trading Portfolio - Company B Common Stock $110,000 $108,000 Available for Sale Portfolio - Company C Common Stock $355,000 $357,000 Hold-To-Maturity Portfolio - Company D Debentures $500,000 $495,000 Additional Information: All three investments were purchased during 2018. During 2019, Company A sold its investment in Company B for $109,000 and its investment in Company C for $356,000. As of December, 2019, the market value of the investments in Company D Debentures was $501,000. Calculate the following and be sure to identify whether a gain or loss): |A. Holding gain/loss recognized in the income statement in 2018 B. Holding gain/loss recognized in other comprehensive income in 2018 C. Holding gain/loss recognized in the income statement in 2019 D. Holding gain/loss recognized in other comprehensive income in 2019 E. Balance of accumulated other comprehensive income as of December 31, 2019

Answer 1

Trading securities (debt or equity) are securities that are bought and held principally for the purpose of selling them in near term. Trading securities are generally carried at fair value through net income (FVTNI). This requirement does not apply to equity investments accounted for under the equity method

Investment in debt securities are classified as held-to-maturity (HTM) only if the entity has the positive intent and ability to hold these securities to maturity. HTM debt securities are reported at amortized cost

Available for sale (AFS) securities are those not meeting the definition of the other two classification. AFS securities purchased with the intent of selling before they reach maturity. Unrealized holding gain and losses on the AFS securities are recognized in the other comprehensive income

Classification	Reported basis	Unrealized holding gain/loss	Realized gain/ losses
Trading Securities	Fair value	Net Income	Net Income
Available for sale	Fair value	Other Comprehensive income	Reclassified from other comprehensive income to net income
Held-to-maturity	Amortized cost	NA	Net Income

Solution

	Description	Amount	Remarks
A.	Holding gain/(loss) recognized in the income statement in 2018	(2,000)	Note A
B.	Holding gain/(loss) recognized in Other Comprehensive income in 2018	2,000	Note B
C.	Holding gain/(loss) recognized in the income statement in 2019	2,000	Note C
D.	Holding gain/(loss) recognized in Other Comprehensive income in 2019	(2,000)	Note D
E.	Balance of accumulated other comprehensive income as of Dec 31, 2019	-	Note E

Note A -> [Trading Securities, Compnay B common stock (108,000 - 110,000)], Closing Fair value - Acquisition Cost

Note B -> [Available for sale, Company C common stock (357,000- 355,0000], Closing Fair value - Acquisition Cost

Note C -> 1,000 + 1,000 [Trading Securities, Company B common stock (109,000 - 108,000)], Sale price - carrying value + Total gain from AFS, Sales price - Acquisition Cost [Available for sale, Company C common stock (356,000- 355,0000]

Note D -> Reclassified from other comprehensive income to net income, Available for sale, Company C common stock unrealised gain transferred from OCI to Net Income.

Note E ->Available for sale, Company C common stock Accumulated unrealised gain transferred from OCI to Net Income on sales of security.

Accumulated other comprehensive income
Balance as on 01/01/2018	-
Add: Unrealized gain on [AFS, Company C common stock (357,000- 355,0000]	2,000
Balance as on 12/31/2018	2,000
Less: Unrealized gain trasnferred to income statement on sales	(2,000)
Balance as on 12/31/2019	-

Below will be JE on sales of Company C common stock

Description	Debit	Credit
Cash	356,000
Unrealized gain (OCI) relassified	2,000
Investment Company C common stock (AFS)		357,000
Realized gain on sales		1,000
	358,000	358,000