Question

On January 1, 2013, Everglade Company purchased the following securities and properly accounted for them as securities available for sale:

Security/cost/FV
ABC/$40000/$55000
DEF/$72000/$65000
XYZ/$16000/$20000

All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its 2013 statement of other comprehensive income?

Answer 1

In the 2013 statement of other comprehensive income, Everglade Company should report the unrealized losses on the securities available for sale. The amount reported would be the difference between the fair value and the original cost for each security.

Step-by-step explanation:

In the 2013 statement of other comprehensive income, Everglade Company should report the unrealized losses on the securities available for sale. Unrealized losses occur when the fair value of a security is below its original cost. The amount reported would be the difference between the fair value and the original cost for each security.

For the ABC security, the unrealized loss would be $55,000 - $40,000 = $15,000.

For the DEF security, the unrealized loss would be $65,000 - $72,000 = -$7,000. However, since all declines in value are considered temporary, the loss is not recognized. Therefore, no unrealized loss is reported for the DEF security.

For the XYZ security, the unrealized loss would be $20,000 - $16,000 = $4,000. This loss would be reported in the 2013 statement of other comprehensive income.