Question

During 2019, MESA Co. purchased 268,000 shares of Western Corp.'s common stock for $3,216000 with the...

During 2019, MESA Co. purchased 268,000 shares of Western Corp.'s common stock for $3,216000 with the intent to save the stock as part of an existing portfolio. The fair value of the shares was $4342000 at the end of 2019 and the company sold the shares for $5428000 in 2020. Based on this information, what should MRSA Co. report as an unrealized gain in 2019?

$1086000

$1126000

$2121000

No gain would have been reported. This would have been recorded as a loss

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Homework Answers

Answer #1

The unrealized gain during 2019 is calculated as follows:-

Unrealized gain is the excess of the fair market value over the purchase price of the stock during a particular year. A corporation records this excess price as a Unrealized gain as the gain will not be recognized until the stock is sold.

Unrealized gain = Fair value of the shares at the end of 2019 - Purchase price of shares

Unrealized gain = $4,342,000 - $3,216,000

Unrealized gain = $1,126,000

Based on the above calculation, the correct answer is Option B - $1,126,000.

Option A & Option C are incorrect per the above calculations.

Option D is incorrect as it would not be recorded as a loss as the market value of the shares are higher than the purchase price of the shares at the end of 2019.

Please let me know if you have any questions via comments and all the best :) !

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