On January 1, 2012, Ya-Ling Co. paid $500,000 for 20,000 shares of Chen Co.'s common stock and classified these shares as trading securities. The fair value of Chen Co.'s stock at December 31, 2012, is $27 per share. What is the net asset amount (which includes both investments and any related market adjustments) attributable to the investment in Chen that will be included on Ya-Ling's balance sheet at December 31, 2012?

Question

Quizplus · Accepted Answer

The net asset amount attributable to the investment in Chen that will be included on Ya-Ling's balance sheet at December 31, 2012, is calculated as follows:

Cost of investment = $500,000
Fair value of investment at December 31, 2012 = 20,000 shares × $27 per share = $540,000

Since this investment is classified as a trading security, any unrealized gains or losses must be recognized in net income. Therefore, the net asset amount is the fair value of the investment, which is $540,000.