Question

A company has a single investment, which it acquired on May 1, 2019 for $ 150,000. On December 31, 2019, the investment appears in the Statement of Situation for the net amount of $ 125,000. In the equity section of the same state, “Accumulated other comprehensive income” appears in the amount of $ 25,000 (debit). In which category of debt investments is this investment classified?
On April 14, 2020 the company sold the investment for $ 127,000 and did not acquire any more investments during 2020. How much profit or loss will the company recognize in 2020 as a result of this transaction?
Select one:
to.
Loss of $ 23,000, after reclassifying the $ 25,000 of "Other accumulated comprehensive income" to the Statement of Income and Expenses.
b.
It will not recognize profit or loss in the Statement of Income and Expenses and will recognize Other comprehensive income of $ 23,000 (debit).
c.
It will not recognize profit or loss in the Statement of Income and Expenses and will recognize Other comprehensive income of $ 2,000 (credit).
to.
d.
Profit of $ 2,000 in the Statement of Income and Expenses.

Answer 1

 Solution:

 On December 31, 2019, the investment appears in the Statement of Situation for the net amount of $ 125,000. In the equity section of the same state, “Accumulated other comprehensive income” appears in the amount of $ 25,000 (debit). The Investment is classided Fair Value through other comprehends Income (FVTOCI). Therefore, on date of sale company should recognizes Loss of $ 23,000, after reclassifying the $ 25,000 of "Other accumulated comprehensive income" to the Statement of Income and Expenses.

 Option a.) is Right.