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In: Accounting

Balance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo Company...

Balance Sheet Presentation of Available-for-Sale Investments

During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows:

Security Shares Purchased Cost
Hawking Inc. 850 $42,925
Pavlov Co. 2,300 60,490

Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $47 per share. Galileo Company had net income of $332,000 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets.

a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments.

Galileo Company
Balance Sheet (selected items)
December 31, Year 1
Assets
Current Assets:
$
$

b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
$

Solutions

Expert Solution

Requirement:A

Galileo Company
Balance Sheet [Partial]
For the Year Ended December 31, Year 1
Assets
Current Assets:
Available for sale Investment $       103,415
Add: Valuation allowance on available for sale $          55,685 $      159,100

Requirement:B

Galileo Company
Balance Sheet [Partial]
For the Year Ended December 31, Year 1
Stockholders` Equity
Retained Earnings $       332,000
Unrealized gain on available for sale $          55,685 $      387,685

Notes:

1) Unrealized Gain on investments = Market Value - Cost = [(850*60)+(2300*47)] - 103415 [42925+60490] = 55,685

2) This balance of unrealized gain will be added to investments and retained earnings in accord to complete the double entry system.

ekkarill92 answered 2 years ago
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