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Accounting for Investments in Securities

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As of December 31, 2011, Company A has the following investments in marketable securities:

Investment: Acquisition Cost ; 12/31/2011 Market Value
Trading Portfolio - Company B Common Stock: $120,000 ; $110,000
Available for Sale Portfolio - Company C Common Stock: $350,000 ; $365,000
Hold-To-Maturity Portfolio - Company D Debentures: $500,000 ; $495,000

All three investments were purchased in 2011. In 2012, Company A sold its investment in Company B for $118,000 and its investment in Company C for $359,000. As of December, 2012, the market value of the investments in Company D Debentures was $499,000. Calculate the following and indicate if gain or loss

Realized holding gain/loss recognized in the income statement in 2011

Unrealized holding gain/loss recognized in other comprehensive income in 2011

Realized holding gain/loss recognized in the income statement in 2012

Unrealized holding gain/loss recognized in other comprehensive income in 2012

Balance of accumulated other comprehensive income as of December 31, 2012

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Solution Summary

This solution illustrates how to compute the realized and unrealized gains and losses from marketable securities transactions.

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Developing Financial Reporting Objectives

As a means of becoming familiar with the nature and process of applied financial accounting research, consider the case study "An Exercise in Accounting for Marketable Securities" (Lynch, 2007). Next, using outside sources that you may seek and your professional experience, develop and write a 3 page paper concisely answering the following questions:

(A1.1) What might the company's financial reporting objective(s) be with respect to the marketable securities?

(A1.2) What potentially constrains management from meeting the objective(s)?

(A1.3) How can management meet the objective(s) given the constraint(s)?

(A1.4) What is the process used by accountants to consider such objectives and constraints when advising management?

(A1.5) How should accountants communicate their advice to management and what should be included in that communication?

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