I need help with how to display the information on the balance sheets for Dec 31, 2013 and Dec 31, 2014 as per below. What are the entries for each year on each balance sheet?

Effect of various methods of accounting for marketable equity securities.

A.these securities are trading securities. what is the nature and amount of income recognized during 2013 and 2014? How do you present information about these securities on the balance sheet on December 31, 2013 and 2014.

B. Repeat part A assuming these securities are available-for-sale securities held as temporary investments of excess cash.

C. Repeat part A assuming these securities represent long-term investments held as available-for-sale securities.

D. How do you figure out the combined income for 2013 and 2014 under each of the three treatments of these securities in parts a, b, and c.

E.Why do the combined income amounts differ?

F.Does the total shareholders' equity differ? How do you know and why or why not?

Security Acquisition Cost in 2013 Dividends Received Fair Value on Selling Price in 2014 Dividends Received Fair Value on Dec. 31, 2014

During 2013 on Dec. 31, 2013 During 2014

G . . . . . . . $18,000 $ 800 $16,000 $14,500 $ 200 --

H . . . . . . . 25,000 1,500 24,000 26,000 500 --

I . . . . . . . 12,000 1,000 14,000 --------- 1,500 $17,000

$55,000 $3,300 $54,000 $40,500 $2,200 $17,000

Information related to marketable equity securities of Callahan Corporation :

A bank reports the following information relating to its marketable securities classified as available-for-sale securities for a recent year (amounts in millions of US$):

December 31

2013 2014

Marketable Securities at Acquisition Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,968 $14,075

Gross Unrealized Gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445 957

Gross Unrealized Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (510)

Marketable Securities at Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,195 $14,522

Cash proceeds from sales and maturities of marketable securities totaled $37,600 million in 2014. Gross realized gains totaled $443 million, and gross realized losses totaled $113 million during 2014. The carrying value of marketable securities sold or matured totaled $37,008 million. Interest and dividend revenue during 2014 totaled $1,081 million. Purchases of marketable securities totaled $37,163 million during 2014

1 Answer

• A
• the Income of year 2013 is (1000) and the Income of year 2014 is 3500
• Presentation of the securities in balance sheet:
• Trading securities are the short term assets and are to be reported in the asset side of the balance sheet under the head short term assets. These securities are to be recorded at the market value. Company purchases such securities and sold the same only with the intension to earn profits on sale of such securities.
• B
• the Income of year 2013 is 0 and the Income of year 2013 is 500
• Presentation of the securities in balance sheet:
• Securities held for sale are the short term investments and are to be recorded as current assets under the head short term assets. These securities are to be recorded at fair value. Any unrealized gain / (losses) are not to be recorded in income statement rather such amount is recorded as other comprehensive income along with equity section in the balance sheet.
• C
• the Income of year 2014 is 3300 and the Income of year 2014 is 2200
• Presentation of the securities in balance sheet:
• In case where the securities are for long term purpose such securities are recorded as Long term investments under the head of Investments in the balance sheet. These securities are to be recorded at cost price.
• D
• Hence the combined income in case where Shares are tradable shares is 2500, the combined income in case where Shares are held for sale is 500 and the combined income in case where Shares are held for long term purpose is 5500.
• E
• Combined income differs because of the nature of the investments in the above 3 parts, as in part A where the securities are tradable securities income recognized is the sum total of profit and losses whereas in part B where the securities are held for sale only realized profit and losses are recognized as income and in part C where the securities are for long term purpose any amount received as dividend and interest are to be recognized as income.
• F
• Total shareholder's equity differs in case of investments available for long term purpose, as due to unrealized gain or loss on such investment which is the part of other comprehensive income after the equity section.
• Explanation:
• A
• Income recognized in the year 2013 and 2014 assuming the securities are trading securities
• In case of trading securities change in the market value of the securities are to be recognized as profit / (losses), whether or not the company has sold such securities.
• Year 2013
• the Income of year 2013 is (1000)
• Year 2014
• Hence the Income of year 2014 is 3500
• Presentation of the securities in balance sheet:
• Trading securities are the short term assets and are to be reported in the asset side of the balance sheet under the head short term assets. These securities are to be recorded at the market value. Company purchases such securities and sold the same only with the intension to earn profits on sale of such securities.

• B
• Income recognized in the year 2013 and 2014 assuming the securities are Held for sale

• If the securities are held for sale realized gain / (losses) are only to be recorded as income.
• Year 2013
• The company has not sold any security and therefore in the year 2013 the income to be recognized is 0.
• Hence the Income of year 2013 is 0

• Year 2014
• Hence the Income of year 2014 is 500

• Presentation of the securities in balance sheet:

• Securities held for sale are the short term investments and are to be recorded as current assets under the head short term assets. These securities are to be recorded at fair value. Any unrealized gain / (losses) are not to be recorded in income statement rather such amount is recorded as other comprehensive income along with equity section in the balance sheet.

• C
• Income recognized in the year 2013 and 2014 assuming the securities are Long term investments.
• Since the company is holding the securities as long term investments and therefore any dividend or interest received by company on such securities are recognized as income.
• Year 2013
• the Income of year 2013 is 3300
• Year 2014

the Income of year 2014 is 2200

• Presentation of the securities in balance sheet:

• In case where the securities are for long term purpose such securities are recorded as Long term investments under the head of Investments in the balance sheet. These securities are to be recorded at cost price.
• D

• Combined Income of year 2013 and 2014 = Income of year 2013 + Income of year 2014
• (i) Shares are tradable shares
• Combined income = (1000) + 3500
• = 2500

the combined income in case where Shares are tradable shares is 2500

• (ii) Shares are held for sale
• Combined income = 0 + 500
• = 500
• the combined income in case where Shares are held for sale is 500
• (iii) Shares are held for long term purpose
• Combined Income = 3300 + 2200
• = 5500
• the combined income in case where Shares are held for long term purpose is 5500

• E
• Combined income differs because of the nature of the investments in the above 3 parts, as in part A where the securities are tradable securities income recognized is the sum total of profit and losses whereas in part B where the securities are held for sale only realized profit and losses are recognized as income and in part C where the securities are for long term purpose any amount received as dividend and interest are to be recognized as income.

• F

• Total shareholder's equity differs in case of investments available for long term purpose, as due to unrealized gain or loss on such investment which is the part of other comprehensive income after the equity section.