McGinn Company purchased 10% of RJ Company's common stock during 2010 for $100,000.The 10% investment in RJ had a $90,000 fair value at the end of 2010 and a $105,000 fair value at the end of 2011.Which of the following statements is correct if McGinn classified the investment as an available-for-sale security and sold it at the beginning of 2012 for $102,000?
A)The 2012 realized loss reported on the income statement is $3,000.
B)The 2012 realized gain reported on the income statement is $2,000.
C)The 2012 unrealized gain reported on the income statement is $2,000.
D)The 2012 unrealized loss reported on the income statement is $3,000.

Question

Quizplus · Accepted Answer

The 2012 realized gain is $2,000 and is included within McGinn's 2012 income statement. The gain is the difference between the selling price ($102,000) and the original cost ($100,000), when the investment is classified as available-for-sale.

McGinn Company Purchased 10% of RJ Company's Common Stock During