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 $ 42 $ 25 N/A B Corporation shares 57 57 $ 59 C Corporation shares 26 N/A 25 D Industries shares 56 57 61 Totals $ 181 $ 139 $ 145 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 $26 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

2021 - A Corporation Share Value be Reduced by $17 Million .Below will be Journal Entry

	Debit	Credit
Unrealized holding loss	17
Fair value adjustment		17

2022 - A Corporation Shares would need to adjusted with fair value adjustment of 1 Mn

	Debit	Credit
Fair value adjustment	1
Unrealized holding loss		1

Cash	26.00
Fair value adjustment	16.00
Investment in A Corp. Shares		42.00

Finally, unrealized gain of $1 million arises on the sale of A corp. shares shall increase the pre tax earnings

2.145 Million