Question

Escanaba has a portfolio of marketable debt securities that it might sell, but has no plans to do so. How should Escanaba classify these securities, and how should it report unrealized gains and losses from these securities?

Select one:

a. Trading; Component of income from operations

b. Available-for-Sale; Component of income from operations

c. Trading; Separate component of other comprehensive income

d. Held-to-Maturity; Component of income from operations

e. Available-for-Sale; Separate component of other comprehensive income

For investments in debt securities, which classification will result in no recording of unrealized gain or loss?

Select one:

a. Held-to-maturity

b. Trading

c. Available-for-sale

Answer 1

Solution 1:

Escanaba has a portfolio of marketable debt securities that it might sell, but has no plans to do so. Therefore these debt investments should be classified under available for sale categories. Unrealized gain and losses from these securities should be reported as a "Separate component of other comprehensive income"

Hence option e is correct.

Solution 2:

For investments in debt securities "Held-to-maturity" lassification will result in no recording of unrealized gain or loss.

Hence option a is correct.