Problem 1

The following data pertains to Rainbow Corporation’s investments in marketable securities:

Market Value
Cost 12/31/07 12/31/06
Trading P 150,000 P 155,000 P 100,000
Available-for-sale   150,000   130,000   126,000

Questions
1. What amount should Rainbow Corporation report as unrealized holding gain in its 2007
income statement?
a. P 65,000 b.  P 60,000 c.  P 55,000 d.  P 50,000

2. What amount should Rainbow Corporation report as unrealized loss on marketable equity
securities at December 31, 2007, in accumulated other comprehensive income in
stockholders’ equity?
a. P 20,000 b.  P 13,000 c.  P 10,000 d.  P 0

Solution
1. C
Market value – 1/1/07 P 100,000
Market value – 12/31/07   155,000
Unrealized holding gain P     55,000
2. A
Cost P 150,000
Market value – 12/31/07   130,000
Unrealized holding loss P     20,000

Problem 2
The following information pertains to Every Now and Then, Inc.’s portfolio of marketable
investments for the year ended December 31, 2007:

      Cost Fair Value 2007 activities  Fair value

12/31/06     Purc.              Sales 12/31/07
Held-to-maturity
    Security ABC P 100,000 P 95,000

Trading Security
    Security DEFP 150,000 P 100,000   155,000

Available-for-sale
Security GHI   190,000   165,000 P 175,000
Security JKL   170,000   175,000   160,000

Security ABC was purchased at par.  All declines in fair values are considered to be
temporary.

Questions
1. The carrying value of security ABC at December 31, 2007 is
a. P 95,000 b.  P 98,000 c.  P 100,000 d.  P 105,000

2. The carrying value of security DEF at December 31, 2007 is

a. P 100,000 b.  P 120,000 c.  P 150,000 d.  P 155,000

3. The carrying value of security JKL at December 31, 2007 is

a. P 160,000 b.  P 165,000 c.  P 170,000 d.  P 175,000

4. The recognized gain or loss on sale of security GHI is

a. P (40,000) b.  P (25,000) c.  P (15,000) d.  P )10,000)

5. The unrealized holding gain or loss to be reported in 2007 net income is

a. P 55,000 b.  P (25,000) c.  P 15,000 d.  P (5,000)
6. Unrealized gain or loss to be reported at December 31, 2007, as a separate component of
stockholders’ equity entitled “accumulated other comprehensive income” is
a. P (20,000) b.  P 15,000 c.  P (10,000) d.  P 5,000

Solution
1. C Cost since the security is considered as held-to-maturity
2. D Market value at year-end
3. A Market value at year-end
4. C
Selling Price P 175,000
Cost   190,000
Loss P( 15,000)
5. A
Market value – 1/1/07 P 100,000
Market value – 12/31/07   155,000
Unrealized holding gain P     55,000
6. D
Cost P 170,000
Market value – 12/31/07   175,000
Holding gain P       5,000