On August 8, 2007, ZZ, Inc. purchased 5,000 shares (8%) of EZ Company stock for

Question

On August 8, 2007, ZZ, Inc. purchased 5,000 shares (8%) of EZ Company stock for $18 per share. The following information relates to the EZ Company stock: EZ Company paid a dividend of $2 per share on October 1, 2007 The EZ Company stock was valued at $14 per share on December 31, 2007 ZZ, Inc. sold 3,000 shares of the EZ Company stock for $22 per share on May 18, 2008 EZ Company paid a dividend of $2 per share on October 1, 2008 The EZ Company stock was valued at $19 per share on December 31, 2008 Calculate the amount of the unrealized loss shown on ZZ, Inc.'s 2007 income statement

Explanation / Answer

Unrealized Loss shown in ZZ Inc's 2007 Income statement is as follows :

Cost of Share = $ 18

Value of ahare at 31st December 2007 = $ 14

Loss in value = 18 - 14 = $ 4

Hence, unrealised loss = Number of shares * Loss in value

= 5000 * 4

= $ 20000

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