November 1 ($ in millions)
Cash 2.4 Investment revenue 2.4
Investment in Facsimile Enterprises bonds 30 Cash 30
Investment in U.S. Treasury bills 8.9 Cash 8.9
Investment revenue receivable–Convenience bonds ($48 million x 10% x 2/12) 0.8
Investment revenue receivable–Facsimile Enterprises bonds ($30 million x 12% x 1/12) 0.3 Investment revenue 1.1
Note: Securities held-to-maturity are not adjusted to fair value.
Net unrealized holding gains and losses—OCI 25,000 Fair value adjustment ($45,000 – 20,000) 25,000
Requirement 2 None. Accumulated net holding gains and losses for securities available-for-sale are reported as a component of shareholders’ equity (in accumulated other comprehensive income), and changes in the balance are reported as other comprehensive income or loss in the statement of comprehensive income rather than as part of earnings. This statement can be reported either (a) as a combined statement of comprehensive income that includes net income and other comprehensive income, or (b) as a separate statement of comprehensive income.
March 2 ($ in millions)
Investment in Platinum Gauges, Inc., shares 31 Cash 31
Investment in Zenith bonds 20 Cash 20
Cash 2 Investment revenue 2
Cash 1 Investment revenue 1
Cash 21 Investment in Zenith bonds 20 Gain on sale of investments 1
Investment in LTD preferred shares 40 Cash 40
December 31 Accumulated ($ in millions) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
Platinum Gauges, Inc., shares $31 $32* $1
LTD preferred shares 40 37** (3) Totals $71 $69 $(2)
* $32 x 1 million shares
** $74 x 500,000 shares
Adjusting entry: Net unrealized holding gains and losses—OCI ($71 – 69) 2 Fair value adjustment ($71 – 69) 2
January 23 ($ in millions)
Cash ([1 million shares x 1/2] x $32) 16.0 Gain on sale of investments (difference) 0.5 Investment in Platinum Gauges shares ($31 million cost x 1/2) 15.5
Cash ($76 x 500,000 shares) 38
Loss on sale of investments (difference) 2 Investment in LTD preferred (cost) 40
Note: As part of the process of recording the normal, period-end fair value adjusting entry at 12/31/2014, Construction would debit fair value adjustment and credit net unrealized gains and losses—OCI for the $2.5 million associated with the sold investments to remove their effects from the financial statements. (Construction sold only half the Platinum investments so only half of the Platinum fair value adjustment should be removed. The 2.5 amount comes from 3.0 LTD – 0.5 Platinum.)
Exercise 12–9 (concluded)
2013 Income Statement
($ in millions)
Investment revenue (from July 18; Oct. 15) $3
Gain on sale of investments (from Oct. 16) 1
Other comprehensive income:*
Net unrealized holding gains and losses on investments ** $2
* Note: Unlike for trading securities, unrealized holding gains and losses are not included in income for securities available-for-sale. Rather, they are included in other comprehensive income, and accumulated in shareholders’ equity in accumulated other comprehensive income.
** Assuming Construction Forms chooses to report other comprehensive income in a combined statement of comprehensive income that includes net income and other comprehensive income.
Jan. 13 No entry is made for a line of credit until a loan actually is made. It would be described in a disclosure note.
Cash 5,000,000 Notes payable 5,000,000