Chapter 12 Special Income and Investment Reporting Issues 575Berkshire Hathaway, Inc., is a public company holding the investments of Warren Buffet, one
of the wealthiest people in the world. Recent financial statements revealed the following:Accumulated other comprehensive income:
Unrealized appreciation of investments $ 2,599
Applicable income taxes (905)
Reclassification adjustment for appreciation
included in net earnings (1,569)
Applicable income taxes 549
Foreign currency translation adjustments 140
Applicable income taxes 134
Minimum pension liability adjustment (38)
Applicable income taxes 3
Other (34)
Other comprehensive income $ 879
Net earnings $ 7,308Retained Earnings and Accumulated Other Comprehensive Income balances at the end of the
year were $39,189 and $20,435, respectively.a. Determine the total comprehensive income.
b. Determine the total other comprehensive income as a percent of comprehensive income
for Berkshire Hathaway. Round to one decimal place. Discuss the meaning of this
percent.
c. Why is unrealized appreciation (gain) included as part of other comprehensive income?
d. Why are the taxes for unrealized gains subtracted in determining other comprehensive
income?Case 12-5
Unrealized gains and losses
Activity 12-1
Ethics and professional
conduct in business
Activity 12-2
Ethics and professional
conduct in business
BUSINESS ACTIVITIES AND RESPONSIBILITY ISSUES
Taylor Company made a long-term investment in 100,000 shares of Summit Company at $50 per
share. This investment represented less than 1% of the outstanding shares of Summit. By year-
end, the share price climbed to $75 per share for an appreciation of $2,500,000. Near the end of
the year, the CEO, Bud Greene approached the CFO, Sasha Whitman, wishing to recognize the
$2.5 million appreciation as a gain on the income statement. The CEO reasoned that the fair
value of the Summit investment should be disclosed on the balance sheet with the associated
appreciation in share price recognized on the income statement. How should Sasha respond to
the CEO’s assertion?Dillon Matthews is the president and chief operating officer of Ratchet Corporation, a developer
of personal financial planning software. During the past year, Ratchet Corporation was forced
to sell 10 acres of land to the city of Houston for expansion of a freeway exit. The corporation
fought the sale, but after condemnation hearings, a judge ordered it to sell the land. Because of
the location of the land and the fact that Ratchet Corporation had purchased the land over 15
years ago, the corporation recorded a $0.20-per-share gain on the sale. Always looking to turn
a negative into a positive, Dillon has decided to announce the corporation’s earnings per share
of $1.05, without identifying the $0.20 impact of selling the land. Although he will retain ma-
jority ownership, Dillon plans on selling 20,000 of his shares in the corporation sometime within
the next month. Are Dillon’s plans to announce earnings per share of $1.05 without mentioning
the $0.20 impact of selling the land ethical and professional?