5. Peter Inc. purchased several investment securities during 2015, its first yea

Question

5. Peter Inc. purchased several investment securities during 2015, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent. Held-to-Maturity Securities Robin Co. Bonds Fair Value 12/31/2015 $400,000 Fair Value 12/31/2016 $420,000 Amortized Cost 12/31/2015 S375,000 Amortized Cost 12/31/2016 370,000 Available-for-Sale Securities Tom Co. Stock Fair Value 12/31/2015 $150,000 Fair Value 12/31/2016 $160,000 Cost S152,000 Trading Securities Drake Co. Stock Melody Co. Stock Norman Co. Stock Fair Value 12/31/2015 S53,000 $50,000 $48,000 Fair Value 12/31/2016 $63,000 $77,000 $45,000 Cost 67,000 $40,000 S32,000 Instructions a) What balance sheet amount would Peter report for its total investment securities at 12/31/2015? (3 points) b) What would be the balance in Peter's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)? (3 points) c What total unrealized holding gain would Peter report in its 2016 income statement relative to its investment securities? (4 points)

Explanation / Answer

a) what is the balance sheet amount would peter report for its total investment securities at 12/31/2015?

$676,000 (The held to maturity securities are reported at amortized cost, and others are reported at fair value)

i.e (74000= 375000 + 301000)

b) What would be the balance in peter's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet?

$8000 (It is the cumulative increase in fair value above cost for its available for sale securities)

i.e (160,000 -152000)

c) what total unrealized holding gain would peter report in its 2016 income statement relative to its investment securities?

$34000 (It is the difference between the fair values of trading securities at 12/31/2016 and 12/31/2015.

i.e (34000 = 151000-185000)

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