At the end of Year 1, Lane Co. held debt securities classified as trading that cost $86,000 and which had a year-end fair value of $92,000. During Year 2, all of these securities were sold for $104,500. At the end of Year 2, Lane had acquired additional trading securities that cost $73,000 and that had a year-end fair value of $71,000. What is the impact of these activities on Lane's Year 2 income statement?

Answer: Sale of debt securities held. The profit of $12500 is recognized as income in the financial statements. The Acquisition of Additional trading securities doesnot affect the income statement it is a balance sheet transaction

Explanation:

debt securities were sold for $104500. The debt securities had a cost of 86000 and a Fair value of $92000. since the value of the Debt securities would have been Recognized at their Fair Value of $ 92000 in the Balance sheet, the Profit on Sale (Income) of debt securities in year 2 will be

104500 - 92000 = 12500.

A profit on sale (income) of 12500 would be Recognized in the income statement for year 2.

The Acquisition of additional Trading securities at a cost of $73000 will not affect the income statement because acquisition of an asset is not an expense. the acquisition of additional trading securities will only affect the Balance Sheet

additional revenue $10,500

Explanation:

Lane Co. must include in its income statement for year 2 both the realized gain on the sale of securities plus the unrealized losses of the second securities.

the realized gains = sales price - carrying value = $104,500 - $92,000 = $12,500

the unrealized losses = fair market value - cost = $71,000 - 73,000 = - $2,000

total impact = $12,500 (gains) - $2,000 (losses) = $10,500