Question

During 2017, Woods Company purchased 80,000 shares of Holmes Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2017. Woods sold all of the Holmes stock for $17 per share on December 3, 2018, incurring $56,000 in brokerage commissions.


Required:


1. Woods Company should report a realized gain on the sale of stock in 2018 of ____________.

Answer 1

Answer:

The multiple choices are as follows:

a.$44,000.

b.$100,000.

c.$104,000.

d.$160,000.

Option A,$44,000 is correct

Explanation:

In the year 2017,an unrealized loss of $60,000 was recorded on the investment i.e fair value at year end of $1,200,000 minus the cost of the investment of $1,260,000

In the year 2018,the total cash proceeds from sale of investment=($17*80,000)-$56,000=$1,304,000

The realized gain on sale of stock in 2018=cash proceeds-fair value-unrealized loss of $60,000=$1,304,000-$1,200,000-$60,000 =$44,000