Ask Question
14 December, 06:08

At the end of Year 1, Lane Co. held debt securities classified as trading that cost $86,000 and which had a year-end fair value of $92,000. During Year 2, all of these securities were sold for $104,500. At the end of Year 2, Lane had acquired additional trading securities that cost $73,000 and that had a year-end fair value of $71,000. What is the impact of these activities on Lane's Year 2 income statement?

Answers (2)
  1. 14 December, 07:12
    additional revenue $10,500


    Lane Co. must include in its income statement for year 2 both the realized gain on the sale of securities plus the unrealized losses of the second securities.

    the realized gains = sales price - carrying value = $104,500 - $92,000 = $12,500

    the unrealized losses = fair market value - cost = $71,000 - 73,000 = - $2,000

    total impact = $12,500 (gains) - $2,000 (losses) = $10,500
  2. 14 December, 07:40
    Answer: Sale of debt securities held. The profit of $12500 is recognized as income in the financial statements. The Acquisition of Additional trading securities doesnot affect the income statement it is a balance sheet transaction


    debt securities were sold for $104500. The debt securities had a cost of 86000 and a Fair value of $92000. since the value of the Debt securities would have been Recognized at their Fair Value of $ 92000 in the Balance sheet, the Profit on Sale (Income) of debt securities in year 2 will be

    104500 - 92000 = 12500.

    A profit on sale (income) of 12500 would be Recognized in the income statement for year 2.

    The Acquisition of additional Trading securities at a cost of $73000 will not affect the income statement because acquisition of an asset is not an expense. the acquisition of additional trading securities will only affect the Balance Sheet
Know the Answer?