(Financial Statement Effect of Securities) Presented below are three unrelated situations involving equity securities.Situation 1: A debt security, whose fair value is currently less than cost, is classified as available-for-sale but is to be reclassified as trading.Situation 2: A noncurrent held-to-maturity portfolio with an aggregate fair value in excess of cost includes one particular debt security whose fair value has declined to less than one-half of the original cost. The decline in value is considered to be permanent.Situation 3: The portfolio of trading debt securities has a cost in excess of fair value of $13,500. The available-for-sale debt portfolio has a fair value in excess of cost of $28,600.InstructionsWhat is the effect upon carrying value and earnings for each of the situations above?
(Financial Statement Effect of Securities) Presented below are three unrelated situations involving equity securities.
Situation 1: A debt security, whose fair value is currently less than cost, is classified as available-for-sale but is to be reclassified as trading.
Situation 2: A noncurrent held-to-maturity portfolio with an aggregate fair value in excess of cost includes one particular debt security whose fair value has declined to less than one-half of the original cost. The decline in value is considered to be permanent.
Situation 3: The portfolio of trading debt securities has a cost in excess of fair value of $13,500. The available-for-sale debt portfolio has a fair value in excess of cost of $28,600.
Instructions
What is the effect upon carrying value and earnings for each of the situations above?
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