On December 31, 2020, Lexxus Inc. recorded an unrealized gain in income of $10,000 related to...
On December 31, 2020, Lexxus Inc. recorded an unrealized gain in income of $10,000 related to its trading debt securities originally purchased on December 15, 2020, for $40,000. Lexxus recognized pretax GAAP income of $160,000 in 2020 and had a tax rate of 25%.
a. Determine the reported amount of trading securities in the financial statements of Lexxus on December 30, 2020.
| Trading securities (GAAP basis) | Answer |
b. Determine the tax basis of the trading securities on December 30, 2020.
| Trading securities (tax basis) | Answer |
c. Calculate the deferred tax balance and show how it would be reported in the December 31, 2020, balance sheet of Lexxus.
| Balance Sheet, Dec. 31 | 2020 |
|---|---|
| Answer |
Homework Answers
Solution a:
Trading securities (GAAP basis) = fair value on 31.12.2020 = $40,000 + $10,000 = $50,000
Solution b:
Trading securities (tax basis) = Cost of purchase = $40,000
Solution c:
| Balance Sheet, Dec. 31 | 2020 |
| Deferred tax liability ($10,000*25%) | $2,500.00 |
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