Rye Company purchased 15% of Lena Company's common stock during 2016 for $150,000. The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value at the end of 2017. Which of the following statements is correct if Rye classifies the investment as a trading security and sold it at the beginning of 2018 for $148,000?

Question

Quizplus · Accepted Answer

The investment is classified as a trading security, so unrealized gains and losses are included in the income statement. The realized gain is the difference between the sale price and the fair value at the end of the previous year, which is $148,000 - $140,000 = $8,000.

Rye Company Purchased 15% of Lena Company's Common Stock During