Hang Technologies Inc. held a portfolio of shares and bonds that it accounted for using the fair value through other comprehensive income model at December 31, 2011. This was the first year that Hang had purchased investments. In part due to Hang's inexperience, by December 31, 2011, the market value of the portfolio had dropped below its original cost by $28,000. Hang recorded the necessary adjustments at December 31, 2011, and was determined to hold the securities until the unrealized loss of 2011 could be recovered. By December 31, 2012, Hang's goals of recovery had been realized and the original portfolio of shares and bonds had a fair market value $5,500 higher than the original purchase costs. Hang's income tax rate is 38% for all years.
Assume that any gains that will ultimately be realized on the sale of the shares and bonds are taxable as ordinary income when they are realized.
Instructions
(a) Prepare the journal entries at December 31, 2011, to accrue the unrealized loss on Hang's securities and the related income taxes.
(b) Prepare the journal entries at December 31, 2012, to accrue the unrealized gain on the securities and the related income taxes.
(c) Prepare a comparative statement of comprehensive income for the fiscal years ending December 31, 2011 and 2012. Assume net income of $100,000 in each fiscal year.