Question

During 2017, Blue Design purchased a number of investments in equity securities for liquidity management. The investments are minority passive, and described below:

Trading Security	Fair Value – 12/31/2018	Fair Value – 12/31/2017	Cost
ABC Equity	$123,000	$99,000	$65,000
XYZ Equity	$98,000	$178,000	$58,000

ABC posted earnings of $22,000 and XYZ posted earnings of $28,000. These investments were not sold during the year. What is the total for the net unrealized gain/loss shown on the income statement in 2018 for these investments? Please show all calculations.

Answer 1

The earnings of ABC and XYZ will have no effect on our analysis.

We are concerned with the fair value of the investment

Unrealized gains or losses are recorded at end of every year in income statement and correspondingly the value of invetment is increased or decreased.

Thus the fair market value of the investment is carried forward to the next year.

So in 2017

unrealized gain = (99000 - 65000) + (178000 - 58000)

unrealized gain = 34000 + 120000 = 154000

the value of ABC at end of 2017 = 99000 ( not 65000)

the value of XYZ at end of 2017 = 178000 ( not 58000)

In 2018

Unrealized gain = (123000 - 99000) for ABC + ( 98000 - 178000) for XYZ

Unrealized gain = 24000 - 80000

Unrealized loss = 56000

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