You have just started work for Warren Co. as part of the controller's group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company's auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements.

Situation 2: A trading debt security whose fair value is currently less than cost is transferred to the available-for-sale category.

Situation 3: An available-for-sale debt security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.

Situation 5: The company has purchased some equity securities that it plans to hold for less than a year. The fair value of the securities is $7,700 below its cost.

Instructions

What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.