Consider the following facts: - At the end of its first year of operations, Comp

Question

Consider the following facts:
- At the end of its first year of operations, Company A had a trading portfolio consisting of 3 securities as follows:

1. Apple Corporation:
Cost = $46,400
Market Value = $50,000

2. Bubble Company:
Cost = $60,000
Market Value = $55,800

3. Car Company:
Cost = $80,000
Market Value = $76,000

- In the following year, Company A sold the Bubble Company stock for $56,000 cash.

Company A should recognize a ___________ on the sale.

loss of $4,200

gain of $200

loss of $4,000

gain of $1,200

None of these answers are correct

Explanation / Answer

Here we will apply the lower of cost or market value method, We are given that the cost of Bubble company = $60000

Market value = $ 55800

So lower of them is the market value that is $55800

Thus gain = selling price - carrying amount of securities.

Gain = 56000-55800 = $200

Company A should recognise a gain of $200 on the sale.

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