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On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000...

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000 shares currently outstanding. This is the company’s first and only stock investment. On October 31, which is Potter’s year-end, the stock had a fair value of $20,000. Potter should record a:

Multiple Choice

  • Debit to Unrealized Loss-Income for $4,000.

  • Credit to Unrealized Gain-Income for $4,000.

  • Credit to Investment Revenue for $4,000.

  • Debit to Unrealized Gain-Equity for $4,000.

  • Credit to Fair Value Adjustment-Stock for $4,000.

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Answer #1

Answer:-

Credit to Unrealized Gain-Income for $4,000.

Computation:-

Fair Value of the stock : $20,000

Less:Book Value of stock:$16,000

Unrealised Gain(Income) $4,000

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