AN EXERCISE IN ACCOUNTING FOR MARKETABLE SECURITIES

The New Company started business in 2003. During the year, it made the following
investment purchases:
Purchase
Date
Security
10/03/2003 ABC Corp.
11/08/2003 DEF Corp.

# of Shares
Purchased
500
800

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Purchase Price
per Share
$150
$32

Additional information is as follows:
?

During 2004, the New Company sold the ABC stock for $172 per share.

?

The market prices of the securities on 12/31/2003 and 12/31/2004 were as follows:
Security
ABC Corp.
DEF Corp.

?

12/31/2003
$166
$26

12/31/2004
NA
$9

During 2005, the New Company sold the DEF stock for $12 per share.

Required
1. Using the following table as a guide, compute the following balance sheet account
balances related to the investments above, assuming both securities are classified as (a)
available-for-sale (AFS) securities, and (b) trading securities (TS). You may ignore any
impact of income taxes.

This case was prepared by Associate Professor Luann J. Lynch. It was written as a basis for class discussion rather
than to illustrate effective or ineffective handling of an administrative situation. Copyright ? 2007 by the University
of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation.

This document is authorized for use only by Yundi Liu in FINANCIAL ACCOUNTING THEORY -795 Spring 2014
taught by Rong Yang from January 2014 to July 2014.

For the exclusive use of Y. Liu

UV1128

-2-

Investments(a)
Unrealized G/L on AFS(b)
Retained earnings

Available-for-Sale Securities
Dec. 31,
Dec. 31,
Dec. 31,
2003
2004
2005

Trading Securities
Dec. 31, Dec. 31,
Dec. 31,
2003
2004
2005
n/a

n/a

n/a

(a)

Include here the total of the investment in AFS (or investment in TS) account and the allowance to
value at market account.

(b)

Included in accumulated other comprehensive income.

2. Using the following table as a guide, determine the effects of the above investments on
the following income statement accounts, assuming both securities are classified as (a)
available-for-sale securities, and (b) trading securities.

Unrealized G/L on TS
G/L on sale of security
Income before taxes

Available-for-Sale Securities
2003
2004
2005
n/a
n/a
n/a

Trading Securities
2003
2004
2005