At the End of Its First Year the Trading Securities

question 138

Multiple Choice

At the end of its first year the trading securities portfolio consisted of the following common stocks. $\begin{array}{lrr}& \underline{\text { Cost }}& \underline{\text { Fair Value }}\\\text { Atrium Corporation } & \$ 46,500 & \$ 50,000 \\\text { Barnes Inc. } & 60,000 & 58,000 \\\text { Cantor Corporation } & \underline{80,000}& \underline{76,400} \\& \underline{ \$ 186,500} & \underline{ \$ 184,400}\end{array}$
In the following year the Barnes common stock is sold for cash proceeds of $57000. The gain or loss to be recognized on the sale is a

• A) gain of $1200.
• B) loss of $3000.
• C) Loss of $1000.
• D) loss of $2000.

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Definitions:

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be consumed or converted into cash in the short term.

Long-Term Liabilities

Financial obligations of a company not due for more than one year, including bonds payable, long-term leases, and pension obligations.

Times Interest Earned

A ratio that measures creditor margin of safety for interest payments, calculated as income before interest and taxes divided by interest expense.

Income Tax Expense

The total amount of income tax a company reports as an expense in its income statement for a given period.