Security Shares Purchased Cost
Hawking Inc. 900 $44,000
Pavlov Co. 1,780 38,000
Assume that as of December 31, 2014, the Hawking Inc. stock had a market value of $50 per share, and the Pavlov Co. stock had a market value of $24 per share. Galileo Company had net income of $300,000, and paid no dividends for the year ended December 31, 2014. All of the available-for-sale investments are classified as current assets.
a. Prepare the Current Assets section of the balance sheet presentation for the availablefor-sale investments.
b. Prepare the Stockholders’ Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.
Answer:
a. GALILEO COMPANY
Balance Sheet (selected items)
December 31, 2014
Assets
Current assets:
Available-for-sale investments, at cost $82,000
Plus valuation allowance for available-for-sale
investments* 5,720 $87,720
* Computation:
Market:
Hawking Inc.: 900 shares × $50…………………………………………… $45,000
Pavlov Co.: 1,780 shares × $24…………………………………………… 42,720
$87,720
Cost ($44,000 + $38,000)………………………………………………………… 82,000
Unrealized gain…………………………………………………………………… $ 5,720
b. GALILEO COMPANY
Balance Sheet (selected items)
December 31, 2014
Stockholders’ Equity
Retained earnings $300,000
Unrealized gain (loss) on available-for-sale
investments 5,720