The Bertowe Company purchased equity securities at a cost of $500,000 on March 1,2013.These securities were classified as available-for-sale in accordance with management's intention to hold them for more than one year.On December 31,2013,the fair value of the securities was $470,000,and the investment was carried at this value on that balance sheet date.At the end of the third quarter of the next year (September 30,2014),management is considering reclassifying the securities as trading securities,since management likely will sell the securities during 2015.The securities have a market value of $525,000 on September 30,2014.Management also has considered waiting until December 31,2014,the end of the fiscal year,to make the reclassification.
Required:
1.What effect will reclassifying the investment on September 30,2014,have on the balance sheet and income statement of the Bertowe Company?
2.How will the effect be different is management waits until December 31 to reclassify the investment from securities available-for-sale to trading securities?
3.Management has considered the idea that reclassification of the securities may be unnecessary,since management is uncertain if they will sell the securities and there is nothing improper regarding the selling of securities classified as available-for-sale.What would be the effect on the financial statement of the company if management elected not to reclassify the securities?
4.Assume the securities have a fair value of $515,000 on December 31,2014,and are sold on May 1,2015,for $510,000.
a.What are the effects on 2014 income if the securities are reclassified on September 30,reclassified on December 31,or not reclassified during 2014?
b.What would be the effect of the May sale on 2015 income if the securities were reclassified on September 30,reclassified on December 31,or were not reclassified prior to their sale?

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The Answer of The Bertowe Company purchased equity securities at a cost of $500,000 on March 1,2013.These securities were classified as available-for-sale in accordance with management's intention to hold them for more than one year.On December 31,2013,the fair value of the securities was $470,000,and the investment was carried at this value on that balance sheet date.At the end of the third quarter of the next year (September 30,2014),management is considering reclassifying the securities as trading securities,since management likely will sell the securities during 2015.The securities have a market value of $525,000 on September 30,2014.Management also has considered waiting until December 31,2014,the end of the fiscal year,to make the reclassification.
Required:
1.What effect will reclassifying the investment on September 30,2014,have on the balance sheet and income statement of the Bertowe Company?
2.How will the effect be different is management waits until December 31 to reclassify the investment from securities available-for-sale to trading securities?
3.Management has considered the idea that reclassification of the securities may be unnecessary,since management is uncertain if they will sell the securities and there is nothing improper regarding the selling of securities classified as available-for-sale.What would be the effect on the financial statement of the company if management elected not to reclassify the securities?
4.Assume the securities have a fair value of $515,000 on December 31,2014,and are sold on May 1,2015,for $510,000.
a.What are the effects on 2014 income if the securities are reclassified on September 30,reclassified on December 31,or not reclassified during 2014?
b.What would be the effect of the May sale on 2015 income if the securities were reclassified on September 30,reclassified on December 31,or were not reclassified prior to their sale?

The Bertowe Company Purchased Equity Securities at a Cost of $500,000