In Its First Year of Operations, Roger Company Purchased Trading

question 121

Multiple Choice

In its first year of operations, Roger Company purchased trading securities at a total cost of $53,000. On December 31, the end of Roger's fiscal year, the fair market value of those investments totaled $57,000. As a result of these investments, Roger Company will report

• A) Investment in Trading Securities of $57,000.
• B) Investment in Trading Securities of $53,000.
• C) Unrealized Holding Gain/Loss-Trading Securities of $4,000 on the income statement as ordinary income.
• D) a credit balance in the contra account to Investment in Trading Securities of $4,000.

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Definitions:

Allowance Method

An accounting approach to managing bad debts by estimating and recording uncollectable accounts receivable as an expense before the debts are known to be uncollectable.

Bad Debts Expense

The cost associated with the portion of accounts receivable that is estimated to be uncollectible during a fiscal period.

Uncollectible Account

A receivable that is considered uncollectible from a debtor, usually displayed as an expense.

Allowance for Doubtful Accounts

A contra-account reducing accounts receivable to reflect the amount expected not to be collected due to customers' defaulting.