Question

Alan company invests $500,000 in equity securities on April 30, 2016, and classifies them as trading securities. At December 31, 2016, the company’s year-end, the securities have a fair value of $495,000. On February 1, 2017, the company sells the securities for $520,000.

Which statement is true regarding how this information is reported in the company's financial statements?

a. The companies 2016 balance sheet reports the securities at $495,000, and gain of $20,000 is reported on the 2017 income statement.

b.The companys 2016 balance sheet reports the securities at $500,000 and no gain or loss appears in the 2016 financial statements.

c. The company 2016 balance sheet reports the securities at $500,000, and a loss of $5,000 is reported on the 2016 income statement.

d. The companys 2016 balance sheet reports the securities at $495,000, and a gain of $25,000 is reported on the 2017 income statement.

Answer 1

Answer:

d. The company's 2016 balance sheet reports the securities at $495,000, and a gain of $25,000 is reported on the 2017 income statement.

Explanation:

Trading securities should be reported at fair value at the end of the financial Year.

So, The Company's 2016 balance sheet reports the securities at $495,000.

Any difference between Fair value of trading securities and sale value should be reported in the income statement.

So, Gain of $25,000 [$520,000 - $495,000] should be reported on the 2017 income statement as investments are sold in 2017.

Therefore,The company's 2016 balance sheet reports the securities at $495,000, and a gain of $25,000 is reported on the 2017 income statement.

Thus,

Option d is correct and remaining options are incorrec.t