Question

Beresford Inc. purchased several investments in debt securities during 2020, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. Held-to-Maturity Securities: ABC Co. Bonds Fair Value 12/31/2020 $388,000 Fair Value 12/31/2021 $413,000 Amortized Cost 12/31/2020 $380,500 Amortized Cost 12/31/2021 $373,000 Trading Securities: DEF Co. Bonds GEH Inc. Bonds IJK Inc. Bonds Fair Value 12/31/2020 $ 58,000 $ 60,000 $ 57,000 Fair Value 12/31/2021 $ 69,000 $ 96,300 $ 51,500 Cost $ 74,400 $ 52,000 $ 45,900 Available-for-Sale Securities: LMN Co. Bonds Fair Value 12/31/2020 $151,400 Fair Value 12/31/2021 $165,500 Cost $153,000 What total unrealized holding gain would Beresford report in its 2021 income statement relative to its investments in bonds?

Answer 1

Solution:

Held for Maturity investments are always recorded at amortized cost so they are not considered for fair value gains.

Unrealised gains and losses on trading securities are included in earnings because they are held principally for selling in the near term.

Unrealised gains and losses from available for sale securities are not included in earnings but they are reported separately in shareholder's Equity.

So, unrealized gains/losses from trading securities in 2021 is:

Fair value at the end of the year - Fair value at the beginning of the year

($ 69,000 + $ 96,300 + $ 51,500) - ($ 58,000 + $ 60,000 + $ 57,000)

$ 216,800 - $ 175,000

$ 41,800

Hence the correct option is $ 41,800