Hey Chegg, you already helped me answer this question, in which I am very grateful. The only thing that I need help on is for question B, C, and D, which are all multiple choice questions. You provide me with the answer for those three multiple choice questions, but I would really appreciate it if you can explain to me in detail why that correct answer that you chose is the appropriate choice and why the other three incorrect answers are inappropriate choices?

Interpreting Footnote Disclosures for Investments

CNA Financial Corporation provides the following footnote to its 2012 10-K report.

Valuation of investments: The company classifies its fixed maturity securities and its equity securities as either available-for-sale or trading, and as which, they are carried at fair value. Changes in fair value of trading securities are reported within Net investment income on the Consolidated Statements of Operations. Changes in fair value related to available-for-sale securities are reported as a component of other comprehensive income Losses may be recognized within Net realized investment gains (losses) on the Consolidated Statements of Operations when a decline in value is determined by the Company to be other-than-temporary.

The following table provides a summary of fixed maturity and equity securities.

Summary of Fixed Maturity and Equity Securities
December 31, 2012 (in millions)	Cost or Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value	Unrealized OTTI Losses (Gains)
Fixed maturity securities available-for-sale
Corporate and other bonds	$ 19,530	$ 2,698	$ 21	$ 22,207	$ --
States, municipalities and political subdivisions	9,372	1,455	44	10,783	--
Asset-backed:
Residential mortgage-backed	5,745	246	71	5,920	(28)
Commercial mortgage-backed	1,692	147	17	1,822	(3)
Other asset-backed	929	23	--	952	--
Total asset-backed	8,366	416	88	8,694	(31)
U.S. Treasury and obligations of government sponsored enterprises	172	11	1	182	--
Foreign government	588	25	--	613	--
Redeemable preferred stock	113	13	1	125	--
Total fixed maturity securities available-for-sale	38,141	4,618	155	42,604	(31)
Total fixed maturity securities trading	29	--	--	29
Equity securities available-for-sale
Common stock	38	14	--	52
Preferred stock	190	7	--	197
Total equity securities available-for-sale	228	21	--	249
Total	$ 38,398	$ 4,639	$ 155	$ 42,882

a) At what amount does CNA report its investment portfolio on its balance sheet? In your answer identify the portfolios fair value, cost, and any unrealized gains and losses.

Amount in millions

Reported on balance sheet Fixed Maturity Fixed Maturity Equity securities- Total

available for security trading available for sale

sale

Fair Value 42,604 29 249 $42,882

Cost 38,141 29 228 $38,398

Unrealized Gains 4,618 - 21 $4,639

Unrealized Losses (155) - - $(155)

In respect of questions that follow (1) give reasons for your choice (2) Give reasons why other choices are not appropriate

(b) How do CNAs balance sheet and income statement reflect any unrealized gains and/or losses on the investment portfolio?

Securities are reported at historical cost. Gains and losses are recognized upon sale of the securities.

Securities are reported at market value. Unrealized gains and losses are recognized currently in net income.

Securities are reported at market value. Unrealized gains and losses on AFS (Trading) securities are recorded in accumulated other comprehensive income (net income).

Securities are reported at market value. Only unrealized losses are recognized in net income. Unrealized gains are deferred and recognized upon sale of the securities.

(c) How do CNAs balance sheet and income statement reflect gains and losses realized from the sale of available-for-sale securities?

Gains and losses realized from the sale of securities are recognized in current income. The company records an accounting (reclassification) adjustment in the AOCI account to reflect the elimination of previously recorded unrealized gains and losses.

No entry is required as the securities are currently reported at market value and all unrealized gains and losses are reflected in current income. The market value changes bypass the income statement.

Gains and losses realized from the sale of securities are recognized in current income. The company records an accounting (reclassification) adjustment in cash and cash equivalents to reflect the elimination of previously recorded unrealized gains and losses.

Gains and losses realized from the sale of securities are recognized in current income. The company records an accounting (reclassification) adjustment in retained earnings to reflect the elimination of previously recorded unrealized gains and losses.