Question

The following data pertain to Tyne Company’s investments in marketable equity securities. (Assume that all securities were held throughout 2019 and 2020.) Note that the new FASB guidance on accounting for minority-passive investments is effective beginning in 2018. Under the prior rules, Alpha was a trading security and Beta was an available-for-sale security. Beta’s fair value at 12/31/17 was $135,000.

			Fair value
	Cost		12/31/20			12/31/19
Alpha Co.	$	150,000	$	155,000		$	100,000
Beta Co.		150,000		130,000			120,000

Required:

1. What amount should Tyne report as unrealized holding gain (loss) in its 2020 income statement?
2. What amount should Tyne report as net unrealized gain (loss) on available-for-sale securities at December 31, 2020, in its statement of stockholders’ equity? Ignore tax effects.

Answer 1

Part 1
Unrealized gain or losses from available for sale securities are not identified to Income statement, they are identified in OCI. Hence they should not be considered
Trading securities are revalued to market value every year. Hence the gain or loss for the year is the difference between prior year market value and the current year market value.
Answer = $55,000 ($155,000 - $100,000)
Part 2
AOCI is an accumulated account. Hence the losses and gains have to be compared to the original costs. AOCI balances for a specific investment is impacted only if it sold.
In this case the AOCI balance would contain:
$150,000 - $120,000 = Loss of $30,000
$120,000 - $130,000 = Gain of $10,000
Net cumulative loss = $20,000