Question

Question 3 Not changed since last attempt Marked out of 2.00 P Flag question Use the following information on a company's investments in equity securities with no significant influence. Investment Date of Cost Fair Value Date Selling Acquisition 12/31/19 Sold Price Colt Company stock 9/20/19 $38,000 $37,000 2/10/20 $42,000 Dana Company stock 10/2/19 14,000 14,200 1/17/20 13,000 What amount is reported for gain or loss on these securities in 2020 income? Select one: O A. No gain or loss O B. $4,000 gain O C. $3,000 gain o D. $3,800 gain

Answer 1

Solution:

The Answer is C) $3000 gain

Explanation:

Investment	Cost (a)	Selling Price(b)	Gain /(loss) (b-a)
Colt Company stock	$        38,000	$               42,000	$                     4,000
Dana Company stock	$        14,000	$               13,000	$                  (1,000)
Total Gain / (loss)			$                     3,000

Notes:

1) Here equity investment has no significant influence through holding. So, We have to follow fair value method in accounting

2) As per fair value method, we do not adjust the fair value to investment value at year end unless we have opted for fair value option method.

3) In this question , Is it no where given that company has opted fair value option method. So, In order to realize the gain or loss. We have subtract the cost from selling price.

4) Here Gain is $3000 on both investments

5) So, Remaining options are Incorrect.