Question

Balance Sheet Presentation of Available-for-Sale Investments

During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows:

Security	Shares Purchased	Cost
Hawking Inc.	610		$22,021
Pavlov Co.	1,650		31,020

Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $43 per share and the Pavlov Co. stock had a market value of $34 per share. Galileo Company had net income of $170,300 and paid no dividends for the year ending December 31, Year 1. All of the available-for-sale investments are classified as current assets.

a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments.

Galileo Company
Balance Sheet (selected items)
December 31, Year 1
Assets
Current Assets:
	$
		$

b. Prepare the Stockholders' Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

Galileo Company
Balance Sheet (selected Stockholders' Equity items)
December 31, Year 1
Stockholders' Equity
	$

Answer 1

Solution:

a)

Galileo Company Balance sheet (partial) as on Dec 31
Asset
Current asset
Available for sale investmengt at cost	$53,041
(+)Valuation allowance on avaiable for sale	$29,289
	$82,330

Working:

Market value of stock
Hawking (610 share*$43)	$26,230
Parlor(1,650 share *$34)	$56,100
Total (a)	$82,330
Less: cost($22,021+$31,020)(b)	$53,041
Unrealized gain(a-b)	$29,289

b)

Galileo company stock holder equity(partial)
Retained earnings	$170,300
Unrealized gain on available for sale	$29,289
	$199,589

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