On May 1, one hundred shares of stock were originally purchased for $124 per share and are being held as trading securities. The price decreased to $116 per share on August 1 and then increased to $132 on December 31. At what amount should the investment be valued in the December 31 balance sheet?

Question

Quizplus · Accepted Answer

The investment is being held as a trading security, which means it is marked to market at the end of each reporting period. 
- The original cost of 100 shares was $12,400 (100 shares x $124/share). 
- On August 1, the market value of the investment decreased to $116 x 100 shares = $11,600. This decrease in value would result in a loss on the income statement. 
- On December 31, the market value of the investment increased to $132 x 100 shares = $13,200. This increase in value would result in a gain on the income statement. 
Therefore, on the December 31 balance sheet, the investment should be valued at its market value of $13,200.

On May 1, One Hundred Shares of Stock Were Originally