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Topic: Unrealized G/L for Securities (

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t-bone
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Posted: 04 Jun 2010 at 15:02 \| IP Logged

I'm using Becker 2010 software, and I disagree with the provided answer of one of the homework problems in Section 3. For reference to this problem, it is "CPA 04361". The problem is summarized as follows:

H-T-M: Cost-$100,000 in Year 2; FV 12/31/X2-$95,000

A-F-S:
#1: Cost-$190,000; FV 12/31/X1-$165,000;Sold 12/31/X2-$175,000
#2: Cost-$170,000; FV 12/31/X1-$175,000; FV 12/31/X2-$160,000

Unrealized gain or loss to be reported at 12/31/X2 as other comprehensive income is:

The answer they provide is $10,000 gain. I believe it's $5,000 gain.
Does anyone have any comments or insight as to why Becker says $10K?

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Alex2008
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Posted: 04 Jun 2010 at 15:38 \| IP Logged

I can't understand the way you summarized the problem. Anyway I searched the Internet and found the problem. Look at page 6,

http://www.becker.com/accounting/cpaexamreview/students/2007 _Financial_3_Update3.pdf

t-bone
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Posted: 04 Jun 2010 at 16:11 \| IP Logged

Thanks Alex2008.

I was wondering what happens to the $5,000 decline in FV for the HTM
security. But HTM securities are valued at amortized cost so you don't
record unrealized g/l in a valuation account?

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Alex2008
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Posted: 04 Jun 2010 at 19:10 \| IP Logged

Yes. The HTM security does not affect any income or other income account until is sold. Fluctuations in fair value does not affect this security, except (I think) that the debt security loss all its value.

Andycibc
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Posted: 08 Jun 2010 at 12:48 \| IP Logged

Alex2008 wrote:

Yes. The HTM security does not affect any income or other income account until is sold. Fluctuations in fair value does not affect this security, except (I think) that the debt security loss all its value.

Doesn't have to lose ALL value... You can write it down for partial impairment.

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