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 up $5 per share.How should Centrex account for the change in value?
A)A footnote describing the increase in value should be part of the financial statements.
B)An unrealized gain of $2,500 should be shown on the income statement.
C)A realized gain of $2,500 should be shown on the income statement.
D)The gain should not be reported,since stock prices go up and down on a daily basis.

Question

Quizplus · Accepted Answer

Unrealized gains on investments that are intended to be sold in the short term are recognized in the income statement. Since Centrex Corporation plans to sell the Pfizer stock within the next three months and the market price of the stock has increased by $5 per share for 500 shares, this results in an unrealized gain of $2,500 ($5 increase x 500 shares) that should be reported on the income statement.

Centrex Corporation Purchased 500 Shares of Pfizer Stock at $50