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In: Accounting

15-3.6 Balance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo...

15-3.6 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.

910

$48,776

Pavlov Co.

2,470

68,913

Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $64 per share and the Pavlov Co. stock had a market value of $50 per share. Galileo Company had net income of $377,800 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:

Available-for-Sale Investments, at Cost

$

Plus Unrealized Gain (Loss) on Available-for-Sale Investments

$

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

Retained Earnings

$

Unrealized Gain (Loss) on Available-for-Sale Investments

Solutions

Expert Solution

Galileo Company
Balance Sheet (Selected items)
December 31, Year 1
Assets
Current assets:
   Available-for-Sale Investments, at Cost                                           [Refer working note 1] $117,689
   Plus: Unrealized Gain (Loss) on Available-for-Sale Investments    [Refer working note 3] $64,051
Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
   Retained Earnings $377,800
   Unrealized Gain (Loss) on Available-for-Sale Investments [Refer working note 3 $64,051

.

.

Working note 1 - Calculation of total cost:
Cost
Hawking Inc.   (a) $48,776
Pavlov Co.       (b) 68,913
Total cost         (a + b) $117,689

.

.

Working note 2 - Calculation of toal fair value:
Fair value
Hawking Inc.    [910 shares x $64]             (a) $58,240
Pavlov Co.       [2,470 shares x $50]          (b) 123,500
Total fair value                                         (a + b) $181,740

.

.

Working note 3 - Calculation of unrealized gain (loss):
Cost
Total cost of securities          [Refer working note 1] $117,689
Total fair value of securities [Refer working note 2] 181,740
Unrealized gain               [Total fair value - Total cost] $64,051

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