Hopkins Company regularly invests in securities with the intention to earn income.As part of their investment portfolio they bought 20,000 shares of Stern Ltd.for $12.50 per share on March 1, 2014.Hopkins designated the investment as FVTPL At their year-end, December 31, 2014; the shares were trading at $15.00.They sold the shares on January 5, 2015, for $14.50 each.What is the impact of the investment in Stern Ltd.on Hopkins Company's income statement for 2015?

Question

Quizplus · Accepted Answer

The investment in Stern Ltd. was designated as FVTPL, which means that any changes in fair value are recorded in the income statement. Therefore, the increase in value from $12.50 to $15.00 per share would have resulted in a $50,000 unrealized gain being recorded in the income statement for 2014. However, since the shares were sold for $14.50 each on January 5, 2015, the realized loss would be $2,500 ($14.50 - $12.50) per share, or $50,000 for the total investment of 20,000 shares. This realized loss would be recorded in the income statement for 2015. Therefore, the impact of the investment in Stern Ltd. on Hopkins Company's income statement for 2015 is a $10,000 realized loss ($50,000 realized loss - $40,000 unrealized gain recorded in 2014).

Hopkins Company Regularly Invests in Securities with the Intention to Earn