Question

DuBoisCorporation purchased 1,900 shares of Southwest Supplies stock for $30 per share. Southwest Supplies had 100,000 shares of stock outstanding. On the next balance sheet​ date, Southwest Supplies stock is quoted at $27 per share. DuBois sold the Southwest Supplies stock for $55,000 two months later. DuBois​' income statement for the period of the sale should report​ a(n)

A.unrealized gain of $5,700.

B.gain on sale of $3,700.

C.investment of $55,000.

D.loss on sale of $3,700.

Answer 1

DuBois Corporation purchased 1900 Shares@ $30 per share. So in his balance sheet he is having an Investment of $57,000

On the Next balance sheet date,

The price of the Share Falls to $27 per share. We have purchased it on $30 and now the price on the end of balance sheet fall by $3. As per fair value method we will consider this loss in P&L a/c and reduce the Investment by $3 per share. Now the balance sheet is showing the Investment as $51,300 (1900 shares @ $27).

After 2 Months these shares are sold at $55,000. So we have Investment now @51,300 and we sell these at $55,000. So we have the gain of $3,700 ($55,000 - $51,300).

Hence the answer will be B) Gain on sale of $3,700.