During 2013, Truro Company bought 5,000 redeemable preferred shares of Milka Ltd.for $22.50.They received dividends of $2.50 per share during the year.At Truro's year-end the shares had increased in value to $23.50.What would be the effect on Truro Company's net income for the year if they were classified as FVTOCI or Amortized cost?
$\begin{array}{ll}&\text { FVTOCI }&\text { Amortized cost }\
A.&\$ 12,500 & \$ 12,500 \
B.&\$ 12,500 & \$ 17,500 \
C.&\$ 17,500 & \$ 12,500 \
D.&\$ 17,500 & \$ 12,500
\end{array}$

Question

During 2013, Truro Company bought 5,000 redeemable preferred shares of Milka Ltd.for $22.50.They received dividends of $2.50 per share during the year.At Truro's year-end the shares had increased in value to $23.50.What would be the effect on Truro Company's net income for the year if they were classified as FVTOCI or Amortized cost?
 $\begin{array}{ll}&\text { FVTOCI }&\text { Amortized cost }\
A.&\$ 12,500 & \$ 12,500 \
B.&\$ 12,500 & \$ 17,500 \
C.&\$ 17,500 & \$ 12,500 \
D.&\$ 17,500 & \$ 12,500
\end{array}$

Quizplus · Accepted Answer

FVTOCI records the investment at fair value, resulting in a gain of $5,000 ($23.50 - $22.50) x 5,000 shares. Amortized cost records the investment at cost, resulting in a gain of $2,500 ($2.50 x 5,000 shares).

During 2013, Truro Company Bought 5,000 Redeemable Preferred Shares of Milka