Question

On February 15, Jewel Company buys 7,500 shares of Marcelo Corp. common stock at $28.58 per share plus a brokerage fee of $420. The stock is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.20 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.35 per share less a brokerage fee of $275. The fair value of the remaining shares is $29.55 per share. The impact on Jewel’s net income as a result of its investment in Marcelo Corp. was a(n) (Round your intermediate dollar values to the nearest dollar amount):

Multiple Choice

Increase to income of $6,195.

Decrease to income of $2,403.

Increase to income of $3,428.

Decrease to income of $9,000.

Increase to income of $11,403.

Answer 1

Answer is :

Answer is Increase to income of $11,403.

Explanation:

Investment in shares = Number of shares purchased*Purchase price per share = 7500*$28.58 =$2145350

Brokerage fees = $420

Total investment in shares = $2145350 + $420 = $214770

Dividend received on shares = 7500*$1.20 = $9000

Net Sale Value of half of stock = Number of shares sold*Sale price per share - Brokerage fees on sale of shares

=(7500/2)*$29.35 - $275 = $110062.5 - $275 = $109787.5

Income on sale of half of shares = Sale price + Dividend received - Investment amount

= $109787.5 + $9000/2 - $214770/2

= $109787.5 + $4500 - $107385 = $6902.5

Dividend income received on half of shares which has not been sold = $4500

Impact on Jewel’s net income =  $6902.5 + $4500 = $11402.5 i.e. $11403