McGinn Company purchased 10% of RJ Company's common stock during 20X2 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 20X2 and a $105,000 fair value at the end of 20X3.
- Which of the following statements is correct if McGinn classified the investment as an available-for-sale security and sold it at the beginning of 20X4 for $102,000?
A) The 20X4 realized loss reported on the statement of earnings is $3,000.
B) The 20X4 realized gain reported on the statement of earnings is $2,000.
C) The 20X2 unrealized gain reported on the statement of earnings is $2,000.
D) The 20X2 unrealized loss reported on the statement of earnings is $3,000.

Question

Quizplus · Accepted Answer

Since the investment was classified as available-for-sale, unrealized gains and losses would be reported in other comprehensive income, not in earnings. The realized gain in 20X4 is the difference between the sale price ($102,000) and the original purchase price ($100,000), which is $2,000.

McGinn Company Purchased 10% of RJ Company's Common Stock During