McGinn Company Purchased 10% of RJ Company's Common Stock During

question 81

Multiple Choice

McGinn Company purchased 10% of RJ Company's common stock during 2014 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2014 and a $105,000 fair value at the end of 2015. Which of the following statements is correct if McGinn classified the investment as an available-for-sale security and sold it at the beginning of 2016 for $102,000?

• A) The 2016 realized loss reported on the income statement is $3,000.
• B) The 2016 realized gain reported on the income statement is $2,000.
• C)The 2016 unrealized gain reported on the income statement is $2,000.
• D)The 2016 unrealized loss reported on the income statement is $3,000.

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Definitions:

Net Credit Sales

The net sales of a company, calculated by subtracting returns, discounts, and allowances for damaged or missing merchandise from the total sales.

Ending Balance

The difference between footings in a T account.

Asset Turnover Ratio

A ratio that indicates how efficiently a company uses its assets to generate sales and thus helps measure the overall efficiency of the company.

Net Sales

The amount of revenue from sales transactions after deductions for returns, allowances, and discounts have been taken into account.