Explanation Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk. (a) Compute operating income for 2016. Operating income for 2016 } = Net income for 2016 – Unrealized gain ( loss ) for 2016 = { Retained earnings, 2016– Retained earnings, 2015 } –$7,500 = ( $220,000–$175,400 ) –$7,500 = $44,600–$7,500 = $37,100 (b) Compute net income for 2016. Net income for 2016 } = { Retained earnings, 2016– Retained earnings, 2015 } = ( $220,000–$175,400 ) = $44,600 (c) Compute available-for-sale investments, fair value, for 2015. Available-for-sale investments, fair value, 2015 } = { Available-for-sale investments, at cost, 2015 + Valuation allowance, gain, 2015 } = $90,000+$12,000 = $102,000 (d) Compute unrealized gain (loss) for 2015. Unrealized gain (loss) for 2015 will be the same amount given as valuation allowance for available-for-sale investments. Hence, unrealized gain (loss) for 2015 is $12,000. (e) Compute available-for-sale investments, fair value, for 2016. Available-for-sale investments, fair value, 2016 } = { Available-for-sale investments, at cost, 2016 – Valuation allowance, loss } = $86,000–$11,000 = $75,000 (f) Compute unrealized gain (loss) for 2016

14th Edition

ISBN: 9781305088436

Author: Carl Warren, Jim Reeve, Jonathan Duchac

Publisher: Cengage Learning

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Chapter 15, Problem 19E

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Solution Summary: The author analyzes available-for-sale securities for strategic purposes, such as meeting liquidity needs, or managing interest risk.

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