City Holding Company is a multibank holding company headquartered in West Virginia. The company comprises multiple facilities located in West Virginia, Ohio, and Kentucky. The banking subsidiaries provide a full range of banking services and make investments in debt and equity securities under limitations and restrictions imposed by regulations of the Comptroller of the Currency.
Appearing on the following pages are City Holding Company€™s consolidated balance sheet and cash flow statement as well as selected note information pertaining to the available-for-sale securities for Year 2 and Year 1.
Using the information provided, determine responses to the questions that follow. Provide detailed support where appropriate.

Required:
1. Determine the net before-tax unrealized holding gain (loss) on available-for-sale securities that City Holding recognized in Year 2. Assume no adjustments are made to the Unrealized holding gain (loss) account when securities are sold.
2. Assuming a 35% tax rate, determine the deferred tax amounts related to the net unrealized holding gains (losses) that were recorded in Year 2. Indicate whether the deferred tax amounts were a liability or an asset.
3. Prepare the entry that City Holding made at December 31, Year 2 to record the unrealized gain (loss) on available-for-sale securities and to adjust the related stockholders€™ equity account.
4. Prepare the entry that City Holding made to record sales and calls on available-for-sale securities in Year 2.
5. To the extent possible, explain the year-to-year change in the cost basis of the available-for-sale securities (from $377,013,000 on December 31, Year 1, to $436,070,000 on December 31, Year2).

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City Holding Company and Subsidiaries Condensed Consolidated Balance Sheets December 31 S in thousands) Assets Cash and cash equivalents Investment securities available for sale, at fair value Investment securities held to maturity, at amortized cost Year 2 Year l S 129,318 445,384 170,327 383,552 (approximate fair value at December 31 Year 2 S74,415) Loans, net of allowance for loan losses Other assets 72,410 1,175,887 224,912 S2,047,911 1,341,620 220,796 2,116,295 Total assets Liabilities Total deposits S1,564,580 317,938 1,882,518 165,393 S2,047,911 1,691,295 278,651 1,969,946 Other liabilities Total liabilities Total Stockholders' Equity 146,349 2,116,295 Total liabilities and stockholders' equity (continued)