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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Balance sheet presentation of available-for-ale investments

During Year 2, Copernicus Corporation held a portfolio of available-for-sale securities having a cost of $ 185,000. There were no purchases or sales of investments during the year. The market values at the beginning and end of the year were $225,000 and $160,000, respectively. The net income for Year 2 was $180,000, and no dividends were paid during the year. The Stockholders’ Equity section of the balance sheet was as follows on December 31, Year 1:

Copernicus Corporation

Stockholders' Equity

December 31, Year 1

Common stock $ 50.000
Paid-in capital in excess of par 250.000
Retained earnings 340,000
Unrealized gain on available-for-sale investments 40.000
Total $680,000

Prepare the Stockholders’ Equity section of the balance sheet for December 31, Year 2.

To determine

Stockholders’ equity: The claims of shareholders’ or the owners on a company’s resources after the liabilities are paid off is referred to as stockholders’ equity. Stockholders’ equity includes common stock and retained earnings.

To prepare: The stockholders’ equity section of the balance sheet

Explanation

Stockholders’ equity section:

Corporation C
Statement of Stockholders’ Equity (Partial)
December 31, Year 2
Common stock $50,000
Excess of issue price over par 250,000
Retained earnings 520,000
Unrealized gain (loss) on available-for-sale investments (25,000)
Total stockholders’ equity $795,000

Table (1)

Working Notes:

Compute retained earnings, Year 2.

Retained earningsfor Year 2

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