Assume the following information is available about XYZ Corp\'s investment portf

Question

Assume the following information is available about XYZ Corp's investment portfolio at the end of 2015: Cost Fair Value $10,00o $12,000 $25,000 $30,000 $15,000 $12,000 $50,000 $54,000 Investment in A Investment in B Investment in C Total During 2016, XYZ Corp received a $300 dividend from Company A and a $200 dividend from Company B. Furthermore, XYZ Corp sold the investment in Company C for $13,000. At the end of 2016, the fair value of the Investment in A is $11,000 and the fair value of the investment in B is $33,000 What is the effect of all the journal entries that need to be recognized in 2016 on XYZ Corp's net income (ignoring taxes)?

Explanation / Answer

Effect on XYZ's net Income :-

Credits - Dividend from company A :- $300

Dividend from Company b :- $200

Realised Gain on selling C :- $1000(13000-12000)

Unrealised Holding Gain or Loss :- $2000

Therefore, Net Increase in Income Statement = $3500.

Note :- it is assumed that Investment is in Trading Securities.

Unrealised Gain or Loss = Unrealised Gain on B - Unrealised loss on A

= (33000-30000)+(11000-12000)

= 3000-1000

= $2000

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