On July 1, 2014, Surf Company purchased long-term investments in available-for-sale securities as follows: Blue Corporation common stock (par $5) 2,000 shares at $16 per share.
Black Company preferred stock (par $20) 1,500 shares at $30 per share.
The quoted market prices per share on December 31, 2014 were as follows:
Blue Corporation stock, $15 per share
Black Company stock, $30 per share
Each of the long-term investments represents 10% of the total shares outstanding. The combined carrying value of the long-term investments reported in the balance sheet at December 31, 2014 would be which of the following?
A) $77,000.
B) $73,500.
C)$71,500.
D)$75,000.

Question

Quizplus · Accepted Answer

The carrying value of the Blue Corporation stock would be ($16 x 2,000 shares x 10%) = $32,000. The market value of the Blue Corporation stock on December 31, 2014 is less than its cost, so a $2,000 unrealized loss would be recognized in other comprehensive income. The carrying value of the Black Company preferred stock would be ($30 x 1,500 shares x 10%) = $45,000. The market value of the Black Company stock on December 31, 2014 is equal to its cost, so there would be no unrealized gain or loss. 
The combined carrying value of the long-term investments would be $77,000 ($32,000 + $45,000).

On July 1, 2014, Surf Company Purchased Long-Term Investments in Available-For-Sale