27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Missing statement items, available-for-sale securities

Highland Industries Inc. nukes investments in available-for-sale securities. Selected income statement items for the years ended December 31, Year 2 and Year 3, plus selected items from comparative balance sheets, are as follows:


There were no dividends

Determine the missing lettered items

To determine

Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

To find: The missing amounts (a) to (j)



Compute operating income for Year 2.

Operating incomefor Year 2} = Net income for Year 2 – Unrealized gain (loss) for Year 2={Retained earnings, Year 2–Retained earnings, Year 1}–$7,500=($220,000–$175,400)–$7,500= $44,600–$7,500= $37,100


Compute net income for Year 2.

Net incomefor Year 2} ={Retained earnings, Year 2–Retained earnings, Year 1}   =($220,000–$175,400)= $44,600


Compute available-for-sale investments, fair value, for Year 1.

Available-for-sale investments, fair value, Year 1 }={Available-for-sale investments, at cost, Year 1+Valuation allowance, gain, Year 1}= $90,000+$12,000= $102,000


Compute unrealized gain (loss) for Year 1.

Unrealized gain (loss) for Year 1 will be the same amount given as valuation allowance for available-for-sale investments. Hence, unrealized gain (loss) for Year 1 is $12,000.


Compute available-for-sale investments, fair value, for Year 2.

Available-for-sale investments, fair value, Year 2 }={Available-for-sale investments, at cost, Year 2Valuation allowance, loss}= $86,000–$11,000= $75,000


Compute unrealized gain (loss) for Year 2

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