Question

Jeremiah Corporation purchased securities during 2013 and classified them as securities available for sale:

Security/cost/FV
A/$40000/$49000
B/$70000/$66000
C/$28000/$39000

All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2013, income statement relative to the portfolio?

Answer 1

Jeremiah Corporation will report a total gain of $7,000 in the December 31, 2013, income statement relative to the portfolio.

Step-by-step explanation:

To calculate the gain, you subtract the cost of each security from its fair value. For Security A, the gain is $4,900 - $4,000 = $900. For Security B, the gain is $66,000 - $70,000 = -$4,000 (note: this is a loss). For Security C, the gain is $39,000 - $28,000 = $11,000. Adding up these gains and losses: $900 - $4,000 + $11,000 = $7,000 gain.

It's important to note that, despite the decline in the fair value of Security B, it is considered a temporary decline. Therefore, the losses are not realized, and only the gains are reported on the income statement.

Answer 2

Jeremiah Corporation will not report any gain on available-for-sale securities in the 2013 income statement because the gains are unrealized and all declines are considered temporary. No gains or losses are recognized in the income statement unless the securities are sold.

Step-by-step explanation:

The Jeremiah Corporation purchased securities during 2013 and classified them as securities available for sale. The gain or loss on securities available for sale is reported in other comprehensive income, not in the income statement, unless they are sold.

Given that all declines in the value of these securities are considered to be temporary, and assuming no sales occurred, Jeremiah Corporation will not report any gain or loss on these securities in the December 31, 2013, income statement related to the portfolio.

Thus, the unrealized gains or losses will be reported in the equity section of the balance sheet under accumulated other comprehensive income.