Interpreting Footnote Disclosures for Investments Assume CNA Financial Corporation provides the following footnote to its 2011 10-K report. Valuation of investments CNA classifies its fixed maturity securities and its equity securities as either available-for-sale or trading, and as such, 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 componant of other comprehensive income....Investment valuations are adjusted and losses may be recognized as Net realized investment 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, 2011 (in millions)	Cost or Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Fixed maturity securities available-for-sale
U.S. Treasury and obligations of government agencies	$ 122	$ 16	$ 1	$ 137
Asset-backed:
Residential mortgage-backed	6,254	101	265	6,090
Commercial mortgage-backed	994	40	41	993
Other asset-backed	753	18	8	763
Total asset-backed	8,001	159	314	7,846
States, municipalities and political subdivisions	8,157	142	410	7,889
Foreign government	602	18	--	620
Corporate and other bonds	19,492	1,603	70	21,025
Redeemable preferred stock	47	7	--	54
Total fixed maturity securities available-for-sale	36,421	1,945	795	37,571
Total fixed maturity securities trading	6	--	--	6
Equity securities available-for-sale:
Common stock	90	25	--	115
Preferred stock	332	2	9	325
Total equity securities available-for-sale	422	27	9	440
Total	$ 36,849	$ 1,972	$ 804	$38,017

(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.

Reported on balance sheet	=Answer($ millions)
Fair value	=Answer($ millions)
Cost	=Answer($ millions)
Unrealized gains	=Answer($ millions)
Unrealized losses	=Answer($ millions)

(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 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.

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

(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.

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.

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.

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.