The investments of Harlon Enterprises included the following cost and fair value

Question

The investments of Harlon Enterprises included the following cost and fair value amounts: ($ in millions) Fair Value, Dec. 31 2016 Securities Available-for-Sale A Corporation shares B Corporation bonds C Corporation shares D Industries shares Cost $ 32 47 21 51 $ 20 47 na 52 2017 na 49 26 56 Totals $151 $119 $131 Harlon Enterprises sold its holdings of A Corporation shares on June 1, 2017, for $21 million. On September 12, 2017, it purchased the C Corporation shares. Required 1. 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).) million 2-a. 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).) unt million

Explanation / Answer

1 Sale of A corporation shares Cost=$32 Sales value=21 million Loss on sale=32-21=$11 Pre-tax earnings would be reduced by $11. Purchase of C corporation shares has no effect on pre-tax income 2-a. Would be reported at the fair value as on Dec 31,2017=$131 2-b. ($ in millions) Cost at Fair value at Cost at Fair value at Securities available-for-sale Dec 31,2016 Dec 31,2016 Dec 31,2017 Dec 31,2017 A corporation shares 32 20 NA NA B corporation shares 47 47 47 49 C corporation shares NA NA 21 26 D corporation shares 51 52 51 56 Totals 130 119 119 131 ($ in millions) $ Amount Adjustment Type 2016 balance for fair value adjustment 11 Loss (119-130) 2017 balance for fair value adjustment (131-119) 12 Gain Change in fair value adjustment 23 Increase Event General Journal Debit Credit fair value adjustment 23 Net unrealized holding gains and losses-OCI 23 (Recording fair value adjustment for shares)

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