Question

Amgen Inc. reports the following disclosure relating to its December 31, 2015, accumulated other comprehensive income.

$ Millions	Foreign Currency Translation	Cash Flow Hedges	Available for sale Securities	Other	AOCI
Balance as of Dec 31, 2014	$(264)	$290	$(19)	$(15)	$(8)
Other Comprehensive Income:
Foreign Currency Translation Adjustments	$(257)				$(257)
Unrealized (Losses) Gains		$150	$(299)	$8	$(141)
Reclassified Adj to Income		$(143)	$76		$(67)
Other				$1	$1
Income Taxes	$10		$(18)		$8

Balance as of 12/31/2015: $(511) $267 $(260) $(6) $(480)

A. How is Amgen accounting for its investment in marketable equity securities? How do you know? (Note: Amgen's 2015 disclosures are consistent with the former accounting rules for marketable equity securities.)

B. Explain how its 2015 financial statements are impacted by Amgen's unrealized losses on its investment in marketable equity securities.

C. Explain the reclassification adjustments to income of $76 million.

Answer 1

A) Amgen accounts its investment in marketable equity securities at its fair value and classify it as available for sale. We can say this by finding unrealised losses in other comprensive income.

B)The unrealised losses will result in decrease of Other Comprehensive Income and thus a decrease in shareholder's equity.

C)The reclassification adjustment represent the reversal of unrealised loss which has been recognised earlier. This adjustment helps to charge the Income Statement with correct amount when the availabkle for sale investment are sold.