Cost and Fair Value Data for the Trading Securities of McMahon

question 69

Short Answer

Cost and fair value data for the trading securities of McMahon Company at December 31, 2014, are $110,000 and $85,000, respectively. Which of the following correctly presents the adjusting journal entry to record the securities at fair value? a. $\begin{array}{lrr} \text { Dec. 31\quad Unrealized Loss-Income. } &25,000\\\quad\quad\quad\quad \text { Trading Securities} &&25,000\\\end{array}$

b. $\begin{array}{lrr} \text { Dec. 31 \quad Unrealized Gain-Income } &25,000\\\quad\quad\quad\quad \text { Trading Securities } &&25,000\\\end{array}$

c. $\begin{array}{lrr} \text { Dec. 31\quad Unrealized Loss-Income. } &25,000\\ \quad\quad\quad\quad\quad\text {Fair Value Adjustment-Trading } &&25,000\\\end{array}$

d. $\begin{array}{lrr} \text { Dec. 31 \quad Fair Value Adjustment-Trading } &25,000\\ \quad\quad\quad\quad\text { Unrealized Gain—Income} &&25,000\\\end{array}$

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Definitions:

Capitalization

The total market value of all of a company's outstanding shares, calculated by multiplying the share price by the total number of shares.

Profit Rate

The ratio of profit generated to the amount of capital or funds invested over a certain period, often expressed as a percentage.

Capitalization

It refers to the sum of a company's outstanding shares multiplied by its current market price, often used to gauge a company’s size and market value.

Net Investment

Net Investment refers to the total amount spent on purchasing new capital assets minus the proceeds from the sale of old or obsolete assets.