Solutions (a) 1 Investment in trading securities: 80,000 Securities Fair Value Adjustment - Trading 80,000 2 Investment in available-for-sale securities: Securities Fair Value Adjustment (Available-for-Sale) 725,000 725,000 Unrealized Holding Gain or Loss— Income Unrealized Holding Gain or Loss— Equity
Computations Security Cost Fair Value Unrealized Gain/Loss Delaney Motors $1,400,000 $1,600,000 $200,000 Patrick Electric 1,000,000 720,000 -280,000 Total Portfolio $2,400,000 $2,320,000 ($80,000) 2 Computation of Unrealized Gain or Loss in 2009 Security Cost Fair Value Unrealized Gain/Loss Norton Ind. $22,500,000 $21,500,000 ($1,000,000) Computation of Unrealized Gain or Loss in 2010 Security Cost Fair Value Unrealized Gain/Loss Norton Ind. $22,500,000 $22,225,000 ($275,000) Previous Securities Fair ($1,000,000) Value Adjustment (Cr) Securities Fair Value $725,000 Adjustment (Dr) (b) For both classes of securities presented above, describe how the results of the valuation adjustments made in (a) would be reflected in the body of and notes to Brooks' 2010 financia statements. The unrealized holding loss on the valuation of Brooks’ trading securities is reported on the income statement. The loss would appear in the “Other Expenses and Losses” section of the income statem The Securities Fair Value Adjustment is a valuation account and it will be used to show the reductio in the fair value of the trading securities. The trading securities portfolio is disclosed in the balance sheet as a current asset and reported at its fair value. The unrealized holding gain on the valuation of Brooks’ available-for-sale securities is reported as o comprehensive income and as a separate component of stockholders’ equity. The Securities Fair Value Adjustment is used to report the increase in fair value of the available-for-sale securities. The fair value of the securities is reported in the Investments section of the balance sheet. It should be noted that a combined statement of income and comprehensive income, a statement of comprehen income, or a statement of stockholders’ equity would report the components of comprehensive inco The note disclosures for the available-for-sale securities include the aggregate fair value, gross unr holding gains, and gross unrealized holding losses. Any change in the net unrealized holding gain o loss account should also be disclosed. The disclosure for trading securities includes the change in unrealized holding gains or losses which was included in earnings. This is the difference between the fair value at the end of 2007 and the fair value at the end of 2006. Because the FV of this security increased in value from 2006 to 2007, this resulted in an unrealized holding gain for the year.
© Prepare the entries for the Norton investment, assuming that Brooks owns 30% of Norton's shares. Norton reported income of $500,000 in 2007 and paid cash dividends o $100,000. Investment in Norton Industries ($500,000 X 25%) 125,000 Investment Revenue 125,000 Cash ($100,000 X 25%) 25,000 Investment in Norton Industries 25,000 With 25%, Brooks has significant influence and should apply the equity method. No fair value adjustments are recorded under the equity method.
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- Fall '09
- unrealized holding gain, Available-for-Sale Securities, Trading Securities