A firm purchased available-for-sale security investments for $130,000. During the year, the firm received dividends totaling...

A firm purchased available-for-sale security investments for $130,000. During the year, the firm received dividends totaling $10,000 from these stock investments. At year end, the stock portfolio had a quoted market value of $136,000.

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Expert Solution

The dividend received on the available or sale investment of $10,000 will be credited to the profit and loss account is income in the year in which dividend is received. The available for sale security investment shall be shown at current market price to reflect the actual financial position of an organization. In this case the firm has purchased the available for sale security investments at $130,000 however, at the end of the financial year the stock had a quoted price of $136,000 and accordingly, the investment shall be shown at $136,000 in the Balance sheet. The gain of $6,000 shall be recorded in the profit and loss account ($136,000-$130,000) while stating the available for sale securities at the current quoted price in the Balance sheet of the firm.

Thus, the profit and loss account shall be credited by total of $16,000 (10000+6000) and the investment shall be showed at $136,000 in the Balance sheet.

ekkarill92 answered 1 year ago

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