Centrex Corporation purchased 500 shares of Pfizer stock at $50 per share.The managers of Centrex Corporation intend to sell the shares as soon as their target price is reached,which will probably be within the next three months.During the holding period,the market price of the stock went down $5 per share.How should Centrex account for the change in value?
A)A footnote describing the decline in value should be part of the financial statements.
B)An unrealized loss of $2,500 should be shown on the income statement.
C)A realized loss of $2,500 should be shown on the income statement.
D)The decline should not be reported,since stock prices go up and down on a daily basis.

Question

Quizplus · Accepted Answer

The correct answer is B because the decline in the market value of the stock represents an unrealized loss (since the stock has not yet been sold) that should be recognized in the financial statements. Unrealized losses for such short-term investments are typically reflected on the income statement.

Centrex Corporation Purchased 500 Shares of Pfizer Stock at $50