The following information is available for an enterprise's security investments as of December 31, 2011:

In June 2012, the enterprise decided to reclassify the Costco stock as trading securities. The stock had a market value of $41,000 at the time of the reclassification.
What amount of holding gain or loss is immediately recognized in 2012 earnings?

Question

The following information is available for an enterprise's security investments as of December 31, 2011:

In June 2012, the enterprise decided to reclassify the Costco stock as trading securities. The stock had a market value of $41,000 at the time of the reclassification.
What amount of holding gain or loss is immediately recognized in 2012 earnings?

Quizplus · Accepted Answer

Since the Costco stock was reclassified as trading securities, any unrealized holding gains or losses that had previously been recognized in other comprehensive income (OCI) must be immediately reclassified to earnings. The information given shows that the enterprise had acquired the Costco stock for $40,000, so the reclassification resulted in a $1,000 loss ($41,000 - $40,000). Therefore, the correct answer is D, $1,000 loss.

The Following Information Is Available for an Enterprise's Security Investments