Lyrical Company Purchased Equity Securities for $500,000 and Classified Them

question 58

Multiple Choice

Lyrical Company purchased equity securities for $500,000 and classified them as trading securities on September 15, 20X0. On December 31, 20X0, the current market value of the securities was $481,000. How should the investment be reported within the 20X0 financial statements?

• A) The investment in trading securities would be reported on the statement of financial position at its $481,000 market value.
• B) The investment in trading securities would be reported in the statement of financial position at its $500,000 cost.
• C) A realized holding loss on the trading securities would be reported on the statement of earnings.
• D) The investment in trading securities would be reported in the balance sheet at its $481,000 market value and a realized holding loss on the trading securities would be reported on the statement of earnings.

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Definitions:

Revenues

The income earned from normal business operations and includes discounts and deductions for returned merchandise.

Expenses

Expenses refer to the outflow of money to another person or company to pay for an item or service, or for costs necessary to operate a business.

Owner's Capital

The amount of equity in a company owned by its owner or shareholders, representing the net assets after liabilities have been deducted.

Electronic Repair Revenues

Income generated from services related to fixing and restoring electronic devices and equipment.