Disclosure: Computation of Total Economic Gain During Year 1, Walters Company pu
ID: 2575852 • Letter: D
Question
Disclosure: Computation of Total Economic Gain
During Year 1, Walters Company purchased 6,000 shares of Company A common stock for $25 per share and 10,000 shares of Company B common stock for $32 per share. These investments are classified as available-for-sale securities. At December 31, Year 1, Walters Company appropriately recorded a $100,000 debit to Market Adjustment - Available-for-Sale Securities. On March 23, Year 2, the 6,000 shares of Company A common stock were sold for $41 per share. The fair value of the Company B shares on December 31, Year 2, was $38 per share.
Compute the total increase in economic value generated by Walters' stock portfolio during Year 2. (The answer is not $46000)
Explanation / Answer
Value of Portfolio at the end of year 1
Purchase price of A company's shares 6000 * 25 150,000
Purchase price of B company's shares 10000 * 32 320,000
Add - Increase in value of shares 100,000
570,000
Year 2
Opening Balance 570,000
Less - Sale value of company A ( 6000 * 41 ) 246,000
Total Book vaule of Company B share 324,000
Total Market vaule of Company B share 10000 * 38 380,000
Economic value generated (380,000 - 324,000) 56,000
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