At the beginning of Year 1, Scotto Company purchased a portfolio of available-fo

Question

At the beginning of Year 1, Scotto Company purchased a portfolio of available-for-sale securities for $27. None of the available-for-sale securities were sold during the year. At the end of Year 1, the available-for-sale portfolio had a value of $34. Also at the beginning of Year 1, Scotto Company purchased a portfolio of trading securities for $13. None of the trading securities were sold during the year. At the end of Year 1, the trading portfolio had a value of $9. For Year 1, Scotto’s net income (before including any gains or losses from investment securities) was $232. After including any necessary gains or losses from investment securities, what is Scotto’s correct net income for Year 1? Note: Ignore any income tax impact.

Explanation / Answer

Net income before securities : $232

Trading portoflio securities net profit : $9 - $13 =-$4

Available for sale securities net profit : $34 -$27 =+$7

Net profit total = $232-$4+$7=$235

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