Union Planters Union Planters is a Tennessee bank holding company (that is, a co
ID: 2424910 • Letter: U
Question
Union Planters Union Planters is a Tennessee bank holding company (that is, a corporation that owns banks). (Union Planters is now part of Regions Bank.) Union Planters manages $32 billion in assets, the largest of which is its loan portfolio of $19 billion. In addition to its loan portfolio, however, like other banks it has signifi- cant debt investments. The nature of these investments varies from short-term in nature to long-term in nature. As a consequence, consistent with the requirements of accounting rules, Union Planters reports its investments in two different categories—trading and available-for-sale. The following facts were found in a recent Union Planters’ annual report. Instructions
(all dollars in millions) Amortized cost Gross Unrealized gain Gross Unrealized losses Fair Value
Trading account assets $ 275 ----- -------- $ 275
Securities available for sale 8,209 $108 $15 8302
Net income 224
Net securities gains (losses) (9)
(b) How must Union Planters account for its investments in each of the two categories?
Explanation / Answer
Securities held for trading are intended to be sale for short term profit. These securities are reported at their fair market value.Gain or loss will be included in income statement.
Securities available for sale is also reported at their fair market value, But Gain/Loss is recognized in a special account called Unrealized Gain/Loss in other Comprehensive Income.
Amortized Cost Fair Value Gain/(Loss)
Securities for Trading $275 $275 --
Securities available for sale $ 8209 $8302 $93
All above securities are to be recognized at their FMV and Gain of $93 on Securities available for sale should be transfered to Unrealized Gain/Loss in other Comprehensive Income, which will be located in shareholder's equity.
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