Question

Votivo had the following securities that were acquired in Year X1:

Security Type Classification	Cost	Fair Value at 12/31/X1	Fair Value at 12/31/X2
Stock A	12,000	9,000	10,200
Stock B	5,500	7,500	7,000
Bond A (Trading Security)	7,200	8,500	8,000
Bond B (Available for Sale)	16,500	15,700	15,500
Bond C (Held to Maturity)	6,600	10,575	11,350

Assume the investments in stock represent less than 20% control of the company. The reported value on the 12/31/X1 Balance Sheet will total?

Assume the investments in stock represent less than 20% control of the company. What is the amount of the unrealized gain (loss) recorded as Other Comprehensive Income in the 12/31/X1 Statement of Comprehensive Income?

Assume the investments in stock represent less than 20% control of the company. What is the amount of the unrealized gain (loss) recorded on the 12/31/X2 Income Statement?

Answer 1

If the investment in stock represents less than 20 % control of the company, the investment is required to be measured at fair value at the end of each accounting period. Thus the value of investment in Stock A and Stock B will be marked to market, that is, measured at fair value at the end of each year.

A trading security is a current asset and recorded at fair value. Thus Bond A is measured at fair value.

Available for sale securities are those that are purchased with intent to sale before it reaches it maturity and are recorded at fair value. Therefore, Bond B will also be recorded at fair value.

Bond held to maturity is a long-term investment and is thus recorded at original cost of acquisition. Thus Bond C will be recorded at Cost.

The valuation of investment for the two years and the unrealized gain/ (loss) is calculated in the following table:

For the year ended 31/12/X1:

Security	Cost	FV at 12/31/X1	Recorded Value	Unrealized Gain / (Loss)
Stock A	12000	9000	9000	-3000
Stock B	5500	7500	7500	2000
Bond A (Trading Security)	7200	8500	8500	1300
Bond B (Available for sale)	16500	15700	15700	-800
Bonc C ( Held to Maturity)	6600	10575	6600	0
Total			47300	-500

For the year ended 31/12/X2:

Security	Carrying Value	FV at 12/31/X1	Recorded Value	Unrealized Gain / (Loss)
Stock A	9000	10200	10200	1200
Stock B	7500	7000	7000	-500
Bond A (Trading Security)	8500	8500	8500	0
Bond B (Available for sale)	15700	15500	15500	-200
Bonc C ( Held to Maturity)	6600	11350	6600	0
Total			47800	500

Reported Value of total investments on 31/12/X1 will be 47,300.

The Unrealized Loss on investments in year ended 31/12/X1 is 500.

The Unrealized Gain on investments for the year ended 31/12/X2 is 500.