On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.
- The fair value of the remaining shares is $29.50 per share. The impact on Jewel's net income as a result of its investment in Marcelo Corp. was a(n):

Question

Quizplus · Accepted Answer

The correct answer is A because the sale of half of the Marcelo Corp. stock resulted in a gain of $5,440, and the dividend income was $3,950 (7,000 shares x $1.15 per share). The fair value adjustment for the remaining shares resulted in an unrealized gain of $2,245 (2,500 shares x $0.90 per share). The total impact on net income is an increase of $10,295 ($5,440 + $3,950 + $2,245).

On February 15, Jewel Company Buys 7,000 Shares of Marcelo