Question

On 12/31/18, Company ABC buys 100 share in Walmart for $93.15. The following is a list of share prices for Walmart throughout 2019:

3/31/2019	$95.00
6/30/2019	$94.00
9/30/2019	$99.00
12/31/2019	$98.00

Assuming that ABC classifies the investment as a trading security, what will be the value that it reports on its 12/31/19 balance sheet, the gain/loss that it reports on its Q4 2019 incomes statement, and the gain/loss that it reports on its incomes statement for the year ended 12/31/19?

Question 3 options:

	Investments $9,315; Q4 Loss of $100; Gain of $485 for the year
	Investments $9,800; Q4 Loss of $100; Gain of $485 for the year
	Investments $9,315; Q4 Loss of $100; Loss of $100 for the year
	Investments $9,800; Q4 Loss of $100; Loss of $100 for the year

Answer 1

The right option is 2nd - "Investments $9,800; Q4 loss of $100; Gain of $485 for the year".

As the Investment has been classified as a trading security, therefore all the quarterly changes in the stock price will be accounted for in the Income Statement. At the end of each quarter, the Investment will be revalued at the price prevailing at that date. Therefore, on 3/31/2019, 6/30/2019, 9/30/2019 and 12/31/2019 the Investment in share of Walmart will be valued at $95, $94, $99 and $98 respectively.

Value of Investment at 12/31/2019

Price of the share on 12/31/2019 = $98

Total number of shares = 100

Value of Investment on 12/31/2019 = Price of share * Number of shares

= $98.00 * 100

=$9,800.

Gain/loss of Q4

Gain/loss = (Price of share on 9/30/2019 - Price of share on 12/31/2019) * Number of shares

= ($99.00 - $98.00) *100

=$100 Loss.

Gain/loss for the year

Gain/loss = (Original Bought Price - Price of share on 12/31/2019) * Number of shares

= ($93.15 - $98.00) *100

=$485 Gain.