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?

+1
1. 14 December, 07:12
0

Explanation:

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
0
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

Explanation:

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