Question
A company has shares in 3M Company stock that it originally bought for $100,000. On 3/31/2013, this investment was valued at $130,000 on the balance sheet. On 4/4/2013, the company sells the stock for $110,000. The company accounts for this investment using the Available-for-Sale method
How will this transaction show up on the income statement?
It will not affect the income statement
Gain on sale of Investments of $10,000
Gain on sale of Investments of $20,000
Loss on sale of Investments of $10,000
Loss on sale of Investments of $20,000
1 point
10.
Question 10
Which of the followin
How will this transaction show up on the income statement?
It will not affect the income statement
Gain on sale of Investments of $10,000
Gain on sale of Investments of $20,000
Loss on sale of Investments of $10,000
Loss on sale of Investments of $20,000
1 point
10.
Question 10
Which of the followin
Answers
GPT-4o mini
When a company sells an investment that is classified as Available-for-Sale (AFS), the treatment of the gain or loss is determined based on the purchase price and the carrying value of the investment at the time of sale.
Here's the relevant information for this case:
- Original investment: $100,000
- Valuation on 3/31/2013: $130,000
- Selling price on 4/4/2013: $110,000
Since the investment was valued at $130,000 on the balance sheet, that means there was an unrealized gain of $30,000 at that time.
However, when the stock is sold for $110,000, we need to determine the actual gain or loss:
1. **Carrying amount** (which is the last valuation, as it is AFS): $130,000 (the unrealized gain is considered until sold).
2. **Sale price**: $110,000.
Now, calculate the loss:
- Loss on sale = Carrying amount - Sale price
- Loss on sale = $130,000 - $110,000 = $20,000.
As a result, the company will report a loss of $20,000 on the income statement from this sale of the investment.
Therefore, the correct answer is:
**Loss on sale of Investments of $20,000.**
Here's the relevant information for this case:
- Original investment: $100,000
- Valuation on 3/31/2013: $130,000
- Selling price on 4/4/2013: $110,000
Since the investment was valued at $130,000 on the balance sheet, that means there was an unrealized gain of $30,000 at that time.
However, when the stock is sold for $110,000, we need to determine the actual gain or loss:
1. **Carrying amount** (which is the last valuation, as it is AFS): $130,000 (the unrealized gain is considered until sold).
2. **Sale price**: $110,000.
Now, calculate the loss:
- Loss on sale = Carrying amount - Sale price
- Loss on sale = $130,000 - $110,000 = $20,000.
As a result, the company will report a loss of $20,000 on the income statement from this sale of the investment.
Therefore, the correct answer is:
**Loss on sale of Investments of $20,000.**