Balance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows: Security Shares Purchased Cost Hawking Inc. 860 $43,602 Pavlov Co. 2,330 61,512 Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $48 per share. Galileo Company had net income of $337,400 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets. a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments. Galileo Company Balance Sheet (selected items) December 31, Year 1 Assets Current Assets: $fill in the blank 6f30cb02405dfbc_2 Plus Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank 6f30cb02405dfbc_4 $fill in the blank 6f30cb02405dfbc_5 Feedback a. Compute the cost of the available-for-sale investments portfolio. Compute the market price of the available-for-sale investments portfolio. Compute the difference between the two amounts, which is the valuation allowance adjustment. Recall that a Valuation Allowance for Available-for-Sale Investments resulting from an unrealized gain would be shown on the balance sheet as an addition to the current asset of Available-for-Sale Investments (at cost). b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments. Galileo Company Balance Sheet (selected Stockholders' Equity items) December 31, Year 1 Stockholders' Equity Retained Earnings $fill in the blank e26b35fe4ffff84_2 Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank e26b35fe4ffff84_4 Feedback b. Recall that net income flows to retained earnings and is adjusted with unrealized gains/losses in the stockholders' equity section of the balance sheet when dealing with available-for-sale investments.

Balance Sheet Presentation of Available-for-Sale Investments During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows: Security Shares Purchased Cost Hawking Inc. 860 $43,602 Pavlov Co. 2,330 61,512 Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $48 per share. Galileo Company had net income of $337,400 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets. a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments. Galileo Company Balance Sheet (selected items) December 31, Year 1 Assets Current Assets: $fill in the blank 6f30cb02405dfbc_2 Plus Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank 6f30cb02405dfbc_4 $fill in the blank 6f30cb02405dfbc_5 Feedback a. Compute the cost of the available-for-sale investments portfolio. Compute the market price of the available-for-sale investments portfolio. Compute the difference between the two amounts, which is the valuation allowance adjustment. Recall that a Valuation Allowance for Available-for-Sale Investments resulting from an unrealized gain would be shown on the balance sheet as an addition to the current asset of Available-for-Sale Investments (at cost). b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments. Galileo Company Balance Sheet (selected Stockholders' Equity items) December 31, Year 1 Stockholders' Equity Retained Earnings $fill in the blank e26b35fe4ffff84_2 Unrealized Gain (Loss) on Available-for-Sale Investments fill in the blank e26b35fe4ffff84_4 Feedback b. Recall that net income flows to retained earnings and is adjusted with unrealized gains/losses in the stockholders' equity section of the balance sheet when dealing with available-for-sale investments.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Balance Sheet Presentation of Available-for-Sale Investments

During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows:

Security	Shares Purchased	Cost
Hawking Inc.	860		$43,602
Pavlov Co.	2,330		61,512

Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $60 per share and the Pavlov Co. stock had a market value of $48 per share. Galileo Company had net income of $337,400 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets.

a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments.

Galileo Company
Balance Sheet (selected items)
December 31, Year 1
Assets
Current Assets:
	$fill in the blank 6f30cb02405dfbc_2
Plus Unrealized Gain (Loss) on Available-for-Sale Investments	fill in the blank 6f30cb02405dfbc_4	$fill in the blank 6f30cb02405dfbc_5

Feedback

a. Compute the cost of the available-for-sale investments portfolio. Compute the market price of the available-for-sale investments portfolio. Compute the difference between the two amounts, which is the valuation allowance adjustment. Recall that a Valuation Allowance for Available-for-Sale Investments resulting from an unrealized gain would be shown on the balance sheet as an addition to the current asset of Available-for-Sale Investments (at cost).

b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
Retained Earnings	$fill in the blank e26b35fe4ffff84_2
Unrealized Gain (Loss) on Available-for-Sale Investments	fill in the blank e26b35fe4ffff84_4

Feedback

b. Recall that net income flows to retained earnings and is adjusted with unrealized gains/losses in the stockholders' equity section of the balance sheet when dealing with available-for-sale investments.

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