Question

The investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions): Fair Value, Dec. 31 Equity Investments Cost 2021 2022 A Corporation shares $ 56 $ 32 N/A B Corporation shares 71 71 $ 73 C Corporation shares 33 N/A 32 D Industries shares 63 64 68 Totals $ 223 $ 167 $ 173 Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2022, for $33 million. On September 12, it purchased the C Corporation shares.

Required: 1. What is the effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon’s 2022 pretax earnings?

2. At what amount should Harlon's securities equity investment portfolio be reported in its 2022 balance sheet? (For all requirements, enter your answers in millions, (i.e., 10,000,000 should be entered as 10).)

	1. million 2. Amount million

Answer 1

1. Trading securities

2021 – A Corporation shares would be reduced by ($56 - $33) = $23 million

Fair value adjustment                                  23

Unrealized holding loss                               23

2022 – A Corporation shares would need a fair value adjustment of ($33 - $56) $23 million as a credit.

Fair value adjustment ($23 - $23)                                  0

Unrealized holding gain ($23 - $23)                               0

2. They would be reported at their fair value of $173 million

1	Unrealized holding gain/loss	$ -	million
2	Amount	$173	million

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