Sample Essay

The investments at year-end 2007 should be classified as available for sale securities as they are accounted for as long term investments on the company’s balance sheet. Held to maturity investments are investments in debt which a company holds till maturity and trading securities are investments which a company accounts for as short term investments.

The investments by Keelson Enterprises are neither debt instruments nor accounted for as short term investments therefore they will be classified as available for sale securities at the end of 2007 (White, Sondhi, & Fried, 2002).

B.

Available for securities are reported on a company balance sheet using the fair value method and any unrealized gain or loss arising from the difference in the cost and market value of these investments is included in the stockholders’ equity section of the balance sheet (White, Sondhi, & Fried, 2002). The following schedule shows the amount reported on balance sheet of Keelson Enterprises at the end of 2006 and 2007.

At year-end 2006:

Long term Investments:

Investment in Milton Company                                                          $3,100,000

Investment in Holmes Company                                                        $2,800,000

Total Long term investment                                                                $5,900,000

Shareholders’ Equity:

Unrealized loss from investment in Milton Company                        $     400,000

Unrealized loss from investment in Holmes Company                       $19,890,000

Total unrealized loss from investments                                               $20,290,000

At year-end 2007:

Long term Investments:

Investment in Milton Company                                                          $3,350,000

Investment in Balthasar Company                                                      $1,940,000

Total Long term investment                                                                $5,290,000

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