2. At the end of its first year of operations, Company A had a trading portfolio

ID: 2501834 • Letter: 2

Question

2. At the end of its first year of operations, Company A had a trading portfolio consisting of 3 securities as follows:

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

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

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.

A. None of these answers are correct

B. loss of $4,000

C. loss of $4,200

D. gain of $1,200

E. gain of $200

3. Company Z has the following two securities in its trading portfolio at the end of the year:

Common Stock A: Cost = $10,000 Market Value = $12,000

Common Stock B: Cost = $8,000 Market Value = $5,000

At the end of the year, Company Z should:

A. set up a Fair Value Adjustment account for Stock B.

B. report a loss on the income statement for $3,000 under "Other expenses and losses."

C. None of these answers are correct

D. set up a Fair Value Adjustment account for the portfolio.

E. recognize an Unrealized Gain or Loss—Income for $3,000.

2) Company A should recognize a loss of $ 4000 on sale.

3) Set up a fair value adjustment account for the portfoilio

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