ExpertHard1 markMultiple Choice
CPA · Question 34 · Area II: Balance Sheet Accounts
Crystal Corp. has trading securities with the following information at year-end:<br/>- Security A: Cost $80,000, Fair value $75,000<br/>- Security B: Cost $60,000, Fair value $68,000<br/>- Security C: Cost $40,000, Fair value $45,000<br/><br/>What is the net impact on Crystal's net income from these trading securities?
Crystal Corp. has trading securities with the following information at year-end:<br/>- Security A: Cost $80,000, Fair value $75,000<br/>- Security B: Cost $60,000, Fair value $68,000<br/>- Security C: Cost $40,000, Fair value $45,000<br/><br/>What is the net impact on Crystal's net income from these trading securities?
Answer options:
A.
$3,000 gain
B.
$3,000 loss
C.
$8,000 gain
D.
No impact on net income
How to approach this question
Calculate the unrealized gain or loss for each trading security (fair value minus cost), then sum all gains and losses for the net impact on net income. Trading securities' unrealized gains/losses flow through net income.
Full Answer
C.$8,000 gain✓ Correct
Under ASC 320, trading securities are measured at fair value with unrealized gains and losses included in net income. Security A: $(5,000) loss; Security B: $8,000 gain; Security C: $5,000 gain. Net impact = $8,000 gain to net income.
Common mistakes
Treating like AFS securities (gains/losses to OCI), not netting gains and losses together, or calculation errors
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