An available-for-sale debt security is transferred into the trading category. The portion of the unrealized holding gain or loss at the date of the transfer that has not been previously recognized in earnings shall be

Please see the answer below.

Explanation:

Given the information from the question.  According to Kartik solution that is found on chegg for this problem. Please see the following solution  

“a. Current annual corporate tax liability can be found using the corporate tax rate schedule:

Before tax income $ 200,000

Tax liability ($22,250 + $39,000) $61,250

b. Current average tax rate = $61,250 / $200,000 = 30.63%

c. If Hemingway finances its expansion using cash reserves, the new corporate tax liability and average tax rate is as under, using the corporate tax rate schedule:

Before tax income $ 350,000

Tax liability ($113,900 + $5,100) $ 119,000

Average tax rate = $119,000/$350,000 = 34%

d. If Hemingway finances its expansion using debt, the new corporate tax liability and average tax rate is as under, using the corporate tax rate schedule:

Before tax income $ 350,000

less: Interest expense ($ 70,000)

Taxable income $ 280,000

Tax liability ($22,250 + $70,200) $ 92,450

Average tax rate = $92,450/$280,000 = 33.02%

e. The after tax income from each possibility given below should be considered & the choice with the highest after tax income should be recommended:

Current after tax income = $200,000 - $61,250 = $138,750

Expansion with cash reserve, after tax income = $350,000 - $119,000 = $231,000

Expansion with debt, after tax income = $280,000 - $92,450 + $70,000 = $257,550

Hence, the third option with $257,550 after tax income is recommended”

Reference:  

Kartik : https://www.chegg.com/homework-help/questions-and-answers/hemingway-corporation-considering-expanding-operations-boost-income-making-final-decision--q32169475)