On November 10, 2017, Clark Inc. purchased, as a short-term passive investment, shares of Landon Corp. for $100,000 and shares of Norris Incorporated for $50,000. At the end of 2017, the fair market value of the stock of Landon was $80,000 and for Norris Incorporated was $65,000. How should Clark Inc. recognize these changes in market price?

Question

Quizplus · Accepted Answer

Clark Inc. should recognize the decrease in fair value of Landon stock as an unrealized loss of $20,000 (fair value of $80,000 minus cost of $100,000) and the decrease in fair value of Norris stock as an unrealized gain of $15,000 (fair value of $65,000 minus cost of $50,000). The net result is an unrealized loss of $5,000 ($20,000 loss minus $15,000 gain).