[Anonymous]

How do you understand questions like this? When it comes to trading, available for sale, and held to maturity, it seems there are a million rules to follow.

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If losses in the amount of $2,750 (net of tax) on available-for-sale securities have been previously included in other comprehensive income, what amount would be the reclassification adjustment when the securities are sold? Assume a 30% tax rate.

$2,750

$(2,750)

$3,575

$(3,575)

A. This answer is correct. $2,750 had been a deduction of other comprehensive income in prior years. When the securities are sold, the loss will be included in net income, so the $2,750 must be added back to other comprehensive income to avoid taking the loss twice.

[mhueycpa]

1) Identify the BS (Not Balance Sheet) info right away. In this case its the net of tax and tax rate.

2) Prepare Journal Entries and/or T charts. I find this is the best way to comprehend these kinds of questions. Prepare 1 entry for the purchase and 1 for the Sale. The 1 for the Sale will give you your answer.

Hope this helps.

THE 300 CLUB WILL DO JUST FINE!

[Author]

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