Question

NOP has the following portfolio of investments at December 31, 2019: 400 shares of Houston Corp...

NOP has the following portfolio of investments at December 31, 2019:

  • 400 shares of Houston Corp with cost of $11,000 and FMV of $12,000
  • 300 Shares of Dallas Corp with cost of $8,000 and FMV of $7,250

During 2020, the following transactions occurred:

  • March 15, bought 100 shares of Austin Corp for $45 per share.
  • July 31, sold all Dallas Corp stock for $7,400.
  • October 1, received a $0.50 per share cash dividend on Houston Corp.

On December 31, 2020, the fair market value of each of the investments was:

  • Houston Corp, FMV $11,700
  • Austin Corp, FMV $3,900

What would be the total impact on net income and stockholder’s equity in 2020, assuming the above investments were accounted for using the fair market value method? (decreases are shown in parentheses)

NI: (400)
SHE: (550)

NI: (300)
SHE: (300)

NI: (550)
SHE: (550)

NI: 200
SHE: 200

None of the other answer choices is correct.

NI: (400)
SHE: (400)

NI: 50
SHE: 50
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Homework Answers

Answer #1
Net Income Impact:- Amount in $
Gain on sale of Dallas Corp. 150 (7,400 - 7,250 )
Dividend Revenue from Houston Corp. 200 (400 x 0.50 )
Unrealized holding loss on Austin Corp. -600 (3,900 - 4,500 )
Unrealized holding loss on Houston Corp. -300 (11,700 - 12,000 )
Net Income decrease by -550
Stockholder's Equity in 2020 decrease by -550
Correct answer is option 3 (i.e. NI (550 ), SHE (550).
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