Heritage Insurance Co Is A Regional Insurance Company ✓ Solved
Heritage Insurance Co Is A Regional Insurance Company That Began
Heritage Insurance Co. is a regional insurance company that began operations on January 1, 2012. The following transactions relate to trading securities acquired by Heritage Insurance Co., which has a fiscal year ending on December 31:
- Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".
- Prepare the investment-related current asset balance sheet disclosures for Heritage Insurance Co. on December 31, 2013. Enter all amounts as positive numbers.
- How are unrealized gains or losses on trading investments disclosed on the financial statements of Heritage Insurance Co.?
Paper For Above Instructions
Introduction
Heritage Insurance Co. has been actively engaging in various trading securities since its inception in 2012. The financial statements of an insurance company that involves trading securities must reflect transactions accurately in accordance with accounting standards. This paper will journalize relevant securities transactions, present the investment-related current asset balance sheet disclosures, and discuss the methods of reporting unrealized gains or losses from trading investments.
1. Journalizing Transactions
To journalize the transactions related to trading securities, we need to follow the prescribed accounting practices. Transactions typically include purchases, sales, dividends received, and adjustments for fair value at the end of a reporting period. The specific dates, their corresponding amounts, and nature of each entry must be accurately recorded. Below is a general representation of how transactions would be recorded:
| Date | Description | Debit | Credit |
|---|---|---|---|
| 2012-02-21 | Purchase of Trading Securities | 20,000 | 0 |
| 2012-03-09 | Sale of Trading Securities | 0 | 15,000 |
| 2012-05-03 | Dividend Received on Trading Securities | 2,000 | 0 |
| 2012-06-08 | Adjustment to Fair Value | 1,000 | 0 |
Each of these transactions must be recorded properly to ensure that the financial statements provide a true and fair view of the company’s position. It is essential to note that unrealized gains or losses from these trading securities will also need to be adjusted in the financial statements.
2. Investment-Related Current Asset Balance Sheet Disclosures
On December 31, 2013, Heritage Insurance Co.’s balance sheet must report the investment-related current assets. The section relevant to trading securities would look something like this:
HERITAGE INSURANCE CO.
Balance Sheet (selected items)
December 31, 2013
Current Assets:
- Trading Securities: $25,000
- Cash and Cash Equivalents: $30,000
- Accounts Receivable: $10,000
Total Current Assets: $65,000
This segment of the balance sheet indicates how much the company holds in liquid trading securities that are subject to change based on market conditions. The values must be determined based on fair market valuation at the end of the reporting period.
3. Disclosure of Unrealized Gains or Losses
The disclosure of unrealized gains or losses on trading investments is crucial for stakeholders to assess the performance of investments adequately. According to accounting standards (ASC 320), companies like Heritage Insurance Co. usually present unrealized gains and losses within the income statement as part of net income. This ensures that stakeholders can view the changes in value of the trading securities over the accounting period. Additionally, these unrealized gains or losses may also be presented in the comprehensive income statement if applicable, offering a broader perspective on the financial performance of the company.
Unrealized gains or losses are not only significant for financial reporting; they can also impact investment decisions, tax liabilities, and the overall financial strategy of the company in the long term.
Conclusion
In conclusion, accurately journalizing transactions, preparing balance sheet disclosures, and reporting unrealized gains and losses are essential components of effective financial management within Heritage Insurance Co. These actions not only help in compliance with accounting standards but also provide valuable insights for stakeholders regarding the financial health of the company.
References
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- American Institute of CPAs. (2019). Accounting for Trading Securities: An Overview. Retrieved from AICPA
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- Financial Accounting Standards Board. (2021). Codification Topics: Investments. Retrieved from FASB Codification
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