Given the following information about Ultra Inc.’s portfolio of investments: Cos
ID: 2416905 • Letter: G
Question
Given the following information about Ultra Inc.’s portfolio of investments:
Cost
Fair
Value
12/31/04
2005
Purchases
2005
Sales
Fair
Value
12/31/05
Held-to-maturity securities
Security J
$128,000
$130,000
Trading equity securities
Security K
$700,000
$725,000
705,000
Security A
100,000
110,000
$150,000
Available-for-sale equity securities
Security S
400,000
380,000
500,000
Security L
100,000
95,000
102,000
Assume that Security J is a debt security that was purchased at a premium. The premium amortization for 2005 was $3,000. All declines in fair value are considered temporary.
What is the amount of realized gain or loss on Security S?
100,000 loss
120,000 gain
20,000 loss
none of the above
Cost
Fair
Value
12/31/04
2005
Purchases
2005
Sales
Fair
Value
12/31/05
Held-to-maturity securities
Security J
$128,000
$130,000
Trading equity securities
Security K
$700,000
$725,000
705,000
Security A
100,000
110,000
$150,000
Available-for-sale equity securities
Security S
400,000
380,000
500,000
Security L
100,000
95,000
102,000
Explanation / Answer
M/s Uttra Inc had purchased the security S at a cost of $ 400,000 but at the end of the 2004 the realisable valve of the secrurity is $ 380000 , which in turn result in a loss of $ 20000.00 . the Accounting principal say that each and every assets which is for regular purchase or sale or better to say that is of trading in nature is to be reported at the fair market value or realisable value. So, on 31/12/2004 M/s Ultra Inc had reported a loss of $ 20000 on security S.
Now , In 2005 the secrurity S is sold in $ 500000. at this moment the gain on the sale of the security S is $ 500000- $ 380000 = $ 120000 Answer
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