Rye Company Purchased 15% of Lena Company's Common Stock During

question 37

Multiple Choice

Rye Company purchased 15% of Lena Company's common stock during 20X2 for $150,000. The 15% investment in Lena had a $160,000 fair value at the end of 20X2 and a $140,000 fair value at the end of 20X3.
- Which of the following statements is correct if Rye classifies the investment as a trading security?

• A) The 20X2 unrealized gain is $10,000 and is included in Rye's 20X2 net earnings.
• B) The 20X3 unrealized loss is $20,000, but is not included in Rye's 20X3 net earnings.
• C) The 20X3 unrealized loss is $10,000 and is included in Rye's 20X1 net earnings.
• D) The 20X2 unrealized gain is $10,000 and is reported on Rye's statement of financial position as a component of stockholders' equity and is not reported within the statement of earnings.

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Definitions:

Profit Or Loss Test

A method used to assess the financial performance of a company by determining whether it has made a profit or incurred a loss over a certain period.

Separately Reportable

Criteria under which certain activities or financial results must be disclosed individually due to their significance within financial statements or to regulatory bodies.

Industry Segments

Specific categories within an industry that companies can be classified under based on their main business activities.

Revenue Test

A criterion used to determine whether a business segment's revenue is sufficient for it to be considered a reportable segment under financial reporting standards.