In: Accounting
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 |
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 |