Rye Company purchased 15% of Lena Company's common stock during 20X2 for $150,000. The 15% investment in Lena had a $160,000 fair value at the end of 20X2 and a $140,000 fair value at the end of 20X3.
-Which of the following statements is correct if Rye classifies the investment as a trading security and sold it at the beginning of 20X4 for $148,000?

Question

Rye Company purchased 15% of Lena Company's common stock during 20X2 for $150,000. The 15% investment in Lena had a $160,000 fair value at the end of 20X2 and a $140,000 fair value at the end of 20X3. 
-Which of the following statements is correct if Rye classifies the investment as a trading security and sold it at the beginning of 20X4 for $148,000?

Quizplus · Accepted Answer

The investment is classified as a trading security, so unrealized gains and losses are reported on the income statement. The unrealized gain in 20X2 is $10,000 ($160,000 - $150,000), and the unrealized loss in 20X3 is $20,000 ($140,000 - $160,000). The realized gain in 20X4 is $8,000 ($148,000 - $140,000).

Rye Company Purchased 15% of Lena Company's Common Stock During