Harlon Enterprises sold its holdings of A Corporation shares on June 1, 2017, fo

Question

Harlon Enterprises sold its holdings of A Corporation shares on June 1, 2017, for $16 million. On September 12, 2017, it purchased the C Corporation shares.

What is the effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon’s 2017 pretax earnings? (Enter your answer in millions, (i.e., 10,000,000 should be entered as 10).)

At what amount should Harlon's securities available-for-sale portfolio be reported in its 2017 balance sheet? (Enter your answer in millions, (i.e., 10,000,000 should be entered as 10).)

The investments of Harlon Enterprises included the following cost and fair value amounts: ($ in millions) Securities Available-for-Sale A Corporation shares B Corporation shares Cost at Fair Value at Cost at Fair Value at Dec. 31, 2016 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2017 22 S 145 39 1e3 51 103 37 37 DCorporation shares 46 Totals 105 S 99 S S Amount Adjustment Type 2016 balance for fair value adjustment 2017 balance for fair value adjustment Change in fair value adjustment

Explanation / Answer

1) Market value of shares are 15 milion but it has sold it for 16 million. however the cost of shares was 22 million. 22-16= 6 million. loss of $6million.

Cash 16,000,000

Loss on sale 6,000,000

Investment in A Corporation shares 22,000,000

C Corporation shares – no effect. Any change in value would be included in AOCI since the securities are classified as available for sale.

2) a)

The available for sale securities would be shown at their fair value that is 106 million.

b)

Fair value adjustment 37,000,000

Net unrealized holding gain/(loss) 37,000,000

2016 fair value adjustment 22 (cost less 2016 fair value) 2017 fair value adjustment 15 (cost less 2017 fair value)

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