Note b - short-term investments

Short-term investments consist primarily of a diversified portfolio of municipal bonds and money market funds and are classified as follows at March 31:

	2005	2004
Trading securities	$64,433,000	$55,282,000
Available-for-sale debt securities	3,196,000	7,113,000
	$67,629,000	$62,395,000

Trading securities consists of $54,608,000 and $41,707,000 invested in various money market funds at March 31, 2005 and 2004, respectively, while the remainder of trading securities and available-for-sale securities consists primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 2005. The unrealized gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity.

Arctic Cat Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Years Ended March 31,

Accumulated Other Comprehensive Income:

2004:
Unrealized loss on securities available-
for-sale, net of tax	$(154,000)
2005:
Unrealized loss on securities available-
for-sale, net of tax	(140,000)

	2005	2004
Cash flows from
investing activities:
Sale and maturity of
available-for-sale securities	3,703,000	1,729,000

In its 2004 annual report, Arctic Cat disclosed that "The contractual maturities of available-for-sale debt securities at March 31, 2004, are $3,573,000 within one year and $3,340,000 from one year through five years."

131. Required:

How much did Arctic Cat actually receive from the sale of available-for-sale securities during 2005?

Answer:

$130,000 (i.e., $3,703,000 cash flow - $3,573,000 maturity).

Learning Objective: 2 Level of Learning: 3

132. Required:

Based on the data provided above, what gain or loss did Arctic actually realize from selling available-for-sale securities during 2005? Assume a 30% tax rate.

Answer:

$9,800 loss, net of tax savings

The investment, measured at fair value, declined $3,917,000 (from $7,113,000 to $3,196,000) during the year. Of this reduction, $3,573,000 was the maturity of certain of the securities. Also, there was an additional unrealized loss (decline in value of the securities) of $140,000 after tax ($200,000 before a 30% tax of $60,000). Thus, the fair value of the assets sold was $144,000 (i.e., $3,917,000 - $3,573,000 - $200,000). Because the cash flow from the sales was $130,000 (i.e., $3,703,000 cash flow - $3,573,000 maturity), there was a loss before taxes of $14,000 realized on the sale. This generates a tax savings of $4,200 (30% of $14,000). Thus, the loss on the sale was $9,800, net of tax savings.

Learning Objective: 2 Level of Learning: 3