Question

The investments of Harlon Enterprises included the following cost and fair value amounts ($ in millions):

					Fair Value, Dec. 31
Equity Investments	Cost				2021				2022
A Corporation shares		$	58			$	33				N/A
B Corporation shares			73				73			$	75
C Corporation shares			34				N/A				33
D Industries shares			64				65				69
Totals		$	229			$	171			$	177

Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2022, for $34 million. On September 12, it purchased the C Corporation shares.

Required:
1. What is the effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon’s 2022 pretax earnings?
2. At what amount should Harlon's securities equity investment portfolio be reported in its 2022 balance sheet?

Answer 1

Part 1

Trading securities

2021 – A Corporation shares would be reduced by $15 million ($33- $58)

Unrealized holding loss...... 25

Fair value adjustment...... 25

2022 – A Corporation shares would need a fair value adjustment of $24 million as a credit ($34- $58).

Fair Value Adjustment...... ...1

Unrealized holding gain.............. 1 (25-24)

Part 2

They would be reported at their fair value of $177 million

1.	unrealized holding gain	1 million
2.	amount	177 million