Question

The investments of Harlon Enterprises included the following cost and fair value amounts:

($ in millions)					Fair Value, Dec. 31
Equity Investments	Cost				2018				2019
A Corporation shares		$	28			$	18				na
B Corporation shares			43				43			$	45
C Corporation shares			19				na				18
D Industries shares			49				50				54
Totals		$	139			$	111			$	117

Harlon accounts for its equity investment portfolio at fair value through net income. Harlon sold its holdings of A Corporation shares on June 1, 2019, for $19 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 2019 pretax earnings?
2. At what amount should Harlon's securities equity investment portfolio be reported in its 2019 balance sheet

Answer 1

Ans-1- The effect of the sale of the A Corporation shares and the purchase of the C Corporation shares on Harlon's 2019 pretax earnings:-

Tradeing securities:-

2018- A Corporation shares would be reduced by $10 million ($18-$28)

Unrealized holding loss- $10

Fair value adjustment- $10

2019- A Corporation shares would need a fair value adjustment of $9 million as a credit ($19-$28)

Fair value adjustment-$1

Unrealized holding gain -$1( $10-$9)

2- They would be reported at their fair value of $117 million:-

1	Unrealized holding gain	$1 million
2	Amount	$117 million