Cosmo Inc. (Cosmo) invests in two portfolios – Portfolio 1 and Portfolio 2. Portfolio 1 contains securities with an overall intent to profit within a month or two. Portfolio 2 contains equity securities with a moderate amount of acquisition and disposition activity. Which of the following treatments of Cosmo’s reporting of the investments in Portfolios 1 and 2, respectively, is most accurate?
A) |
Unrealized amounts reported on balance sheet. |
Assets reported at fair value. | | |
B) |
Unrealized amounts reported on income statement. |
Assets reported at cost. | | |
C) |
Unrealized amounts reported on income statement. |
Assets reported at fair value. | | |
Portfolio 1 contains held-for-trading securities because it is clear that the securities are acquired with the intent to profit over the near term. Therefore, the unrealized gains and losses would be reported immediately in the income statement.
Portfolio 2 contains available-for-sale securities. There are no debt securities and therefore, it cannot contain held-to-maturity securities. As well, there is no indication that the securities are acquired with the intent to profit over the near term. By default, the correct classification would be available-for-sale. Therefore, the securities (assets) would be reported at fair value. |