5. Peter Inc. purchased several investment securities during 2015, its first yea

Question

5. Peter Inc. purchased several investment securities during 2015, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. Held-to-Maturity Securities Robin Co. Bonds Fair Valuc 12/31/2015 $400,000 Fair Value 12/31/2016 $420,000 Amortized Cost 12/31/2015 S375,000 Amortized Cost 12/31/2016 $370,000 Available-for-Sale Securities Tom Co. Stock Fair Value 12/31/2015 $150,000 Fair Value 12/31/2016 S160,000 Cost $152,000 Trading Securities Drake Co. Stock Melody Co. Stock Norman Co. Stock Fair Valuc 12/31/2015 $53,000 $50,000 $48,000 Fair Value 12/31/2016 S63,000 $77,000 $45,000 Cost $67,000 $40,000 $32,000 Instructions (a) What balance sheet amount would Peter report for its total investment securities at 12/31/2015? (3 points) (b) What would be the balance in Peter's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)? (3 points) (c) What total unrealized holding gain would Peter report in its 2016 income statement relative to its investment securities? (4 points)

Explanation / Answer

Requirement a) Peter will report following for its total investment securities at 12/31/2015 balance sheet Balance sheet (Partial) Investment Section Held to Maturity securities Robin Co. Bonds 375000 Available for sale securities Tom Co. Stock 150000 Trading Securities Drake Co. Stock 53000 Melody Co. Stock 50000 Norman Co. Stock 48000 151000 Total Investment 676000 Requirement b) The following Balances would appear in Peter's Accumulated other comprehensive Income The Accumulated Other Comprehensive Income 2016 Unrealized gain on available for sale securities Opening Balance -2000 Add : unrealized gain during the year 10000 8000 Requirement c) Unrealized holding gain Peter will report in its 2016 income statement Fair value at the end of 2015 Fair value at the end of 2016 Unrealized Holding gain/(Loss) Drake Co. Stock 53000 63000 10000 Melody Co. Stock 50000 77000 27000 Norman Co. Stock 48000 45000 -3000 Total net unrealized holding gain 34000

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