At the end of the f rst year of operations, Key Company had a current equity securities

Question:

At the end of the f rst year of operations, Key Company had a current equity securities portfolio classified as available- for- sale securities with a cost of $ 500,000 and a fair value of $ 550,000. At the end of its second year of operations, Key had a current equity securities portfolio classified as available- for- sale securities with a cost of $ 525,000 and a fair value of $ 475,000. No securities were sold during the first year. One security with a cost of $ 80,000 and a fair value of $ 70,000 at the end of the first year was sold for $ 100,000 during the second year.

Required:

a. How should Key Company report the preceding facts in its balance sheets and income statements for both years? Discuss the rationale for your answer.

b. How would your answer differ if the security had been classified as trading securities?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...