On October 1 of Last Year, Hand Tools Corp

question 94

Multiple Choice

On October 1 of last year, Hand Tools Corp. purchased 1,500 shares of the Bindo Bank for $72,000 as a trading investment. At year end, December 31, the fair value of these shares was $75,000. On February 1 of this year, Hand Tools sold all these shares for $73,000. The realized gain (loss) that Hand Tools will report this year is

• A) a gain of $2,000.
• B) a gain of $1,000.
• C) a loss of $1,000.
• D) a loss of $2,000.

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Definitions:

LEAPS

Long-Term Equity Anticipation Securities, which are options contracts with expiration dates longer than one year, providing a long-duration investment or hedging opportunity.

Strike Price

The specified price at which the holder of an option can buy (call option) or sell (put option) the underlying asset or security until the expiration date.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Stock Price

The current market price at which a share of a company's stock can be bought or sold.