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