Question

If a common stock investment is sold at a gain, the gain

	a.	is reported as operating revenue.
	b.	is reported under a special section, "Discontinued Investments", on the income statement.
	c.	is reported in the Other revenues and gains section of the income statement.
	d.	contributes to gross profit on the income statement.

Answer 1

If a common stock investment is sold at a gain, the gain will be reported in the Other revenues and gains section of the income statement. Hence option c is the correct answer.

Analysis of all the options in the question:

a. Reported as operating revenue - The gain out of a common stock investment is not an operating revenue since the sale of common stock investment is not the primary business of the entity. Hence, option a is not the correct answer.

b.  Reported under a special section, "Discontinued Investments", on the income statement - the sale of a common stock investment is not a discontinued operation/investment, hence option b is not the correct answer.

c. Reported in the Other revenues and gains section of the income statement - Since the sale of common stock investment is not a primary but ancillary/other source of income, it shall be reported in the Other revenues and gains section of the income statement. Hence, option c is the answer.

d. Contributes to the gross profit of the income statement - Since sale of common stock investment is an operating revenue, the same does not contribute to the gross profit of the income statement.