Question

Interpreting Disclosures of Available-for-Sale Securities
Use the following year-end footnote information from Cisco Systems, Inc.'s 10-K report to answer parts a and b.

($ millions)	2014
Cost of available-for-sale investments securities	$43,385
Gross unrealized gains	748
Gross unrealized losses	(31)
Fair value of available-for-sale investments securities	$44,102

a. At what amount is its available-for-sale investments reported on Cisco's 2014 balance sheet?

$Answer million

b. How is its net unrealized gain of $729 million ($759 million - $30 million) reported by Cisco in its financial statements?

The net unrealized gain is reported as a component of AOCI in the shareholders' equity section of the balance sheet.

The net unrealized gain is reported as investment income on the income statement.

The net unrealized gain is not reported in the financial statements until the gain (or loss) is realized.

Answer 1

A. shorterm investments are investments that should be carried in the financial statements at cost or fair value, which ever is lower. Thus unrealised gains should not be recognised untill it is realised. However, unrealised losses occured as the result of reduction in fairvalue of investments should be recognised immediately..

Thus, Carrying Amount of ready to sale investment securities in balance sheet of Cisco at 2014 will be:

Cost of availabel for sale investment: $43385

less: unrealised losses $31   

Fairvalue of investment securities: $ 43354

B. The net unrealized gain is not reported in the financial statements until the gain (or loss) is realized.