P17-10 (Gain on Sale of Investments and Comprehensive Income) On January 1, 2014
ID: 2328874 • Letter: P
Question
P17-10 (Gain on Sale of Investments and Comprehensive Income) On January 1, 2014, Acker Inc. had the following balance sheet: Acker Inc. Balance Sheet As of January 1, 2014 Assets Equity Cash $ 50,000 Common Stock $ 260,000 Equity Investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000 Total $ 290,000 Total $ 290,000 The accumulated other comprehensive income related to unrealized holding gains on available-for-sale securities. The fair value of Acker Inc.'s available-for-sale securities at December 31, 2014, was $190,000; it's cost was $140,000. No securities were purchased during the year. Acker Inc.'s Income Statement for 2014 was as follows: (Ignore income taxes.) Acker Inc. Income Statement For the Year Ended December 31, 2014 Dividend Revenue $ 5,000 Gain on sale of investments 30,000 Net Income $ 35,000 Instructions (Assume all transactions during the year were for cash.) a) Prepare the journal entry to record the sale of the available-for-sale securities in 2014. b) Prepare a statement of comprehensive income for 2014. c) Prepare a balance sheet as of December 31, 2014. P17-10 (Gain on Sale of Investments and Comprehensive Income) On January 1, 2014, Acker Inc. had the following balance sheet: Acker Inc. Balance Sheet As of January 1, 2014 Assets Equity Cash $ 50,000 Common Stock $ 260,000 Equity Investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000 Total $ 290,000 Total $ 290,000 The accumulated other comprehensive income related to unrealized holding gains on available-for-sale securities. The fair value of Acker Inc.'s available-for-sale securities at December 31, 2014, was $190,000; it's cost was $140,000. No securities were purchased during the year. Acker Inc.'s Income Statement for 2014 was as follows: (Ignore income taxes.) Acker Inc. Income Statement For the Year Ended December 31, 2014 Dividend Revenue $ 5,000 Gain on sale of investments 30,000 Net Income $ 35,000 Instructions (Assume all transactions during the year were for cash.) a) Prepare the journal entry to record the sale of the available-for-sale securities in 2014. b) Prepare a statement of comprehensive income for 2014. c) Prepare a balance sheet as of December 31, 2014.Explanation / Answer
Solution:
From the given data we need to find the answers for the given requirements,
Answer for (a):
January 1, 2014
Fair value of available for sale securities ..........................$240,000
Less: Accumulated other comprehensive income.............. (30,000)
Cost basis........................... $210,000
December 31, 2014
Fair value of available for sale securities........................ .$190,000
Less: Cost basis .................................. 140,000
Accumulated other comprehensive income ........ $50,000
Available for sale securities = $210,000 - $140,000
= $70,000
Answer for (b);
ACKER INC.
Statement of comprehensive income
For the year ended december 31,2014
Answer for (c):
ACKER INC Balance sheet as on 31/12/2014
Working note:
Cash = beginning balance + dividend revenue + cash proceeds on sale
= 50000 + 5000 + 100000
= 155,000
Account details Amount ($) Net income 35,000 Other comprehensive income; Total holding gains araising during the year 50,000 Less: Reclassification adjustment for gains included in income 30,000 20,000 Comprehensive income 55,000 Accumulated other comprehensive income 31/12/2014 50,000 Accumulated other comprehensive income 1/1/2014 30,000 Increased in unrealized holding gain 20,000 Realized holding gain 30,000 Total holding gains arising during period $50,000Related Questions
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