Please help with 2-b and entries. Thank you! The investments of Harlon Enterpris

Question

Please help with 2-b and entries. Thank you!

The investments of Harlon Enterprises included the following cost and fair value amounts: (S in millions) Fair Value, Dec. 31 S 26 2017 59 61 38 62 2016 Securities Available-for-Sale A Corporation shares Cost na 59 27 57 bonds C Corporation shares D Industries shares na 58 $187 $143 $161 Harlon Enterprises sold its holdings of A Corporation shares on June 1, 2017, for $27 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).) ase 17 million

Explanation / Answer

ans)

1. A Corporation shares – Loss of $17million:

Cash 27,000,000

Loss on sale 17,000,000

Investment in A Corporation shares 44,000,000

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)  Harlon’s securities available-for-sale portfolio should be reported in its 2017 balance sheet at its fair value of $161 million

2 (b)  

Moving from a negative $17 (2016) to a positive $18 requires an increase of $35:

---------------------------------------------------------

                           -17 0              +18

                       +35 ----------------------------->  

Fair value adjustment ($17 credit to $18 debit) 35

    Net unrealized holding gains and losses ($17 debit to $18 credit) 35

The adjustment has no effect on earnings. Unlike for trading securities, unrealized holding gains and losses are not included in income for securities available-for-sale.

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