During 2012, Walker Corp

question 11

Multiple Choice

During 2012, Walker Corp. acquired 500 shares of Wychek stock at $30 per share. Walker accounted for the stock as trading securities. The market price per share of Wychek's stock as of December 31, 2012 and 2013, is $22.50 and $37.50, respectively. How much unrealized gain or loss on long-term investments should Walker report on its December 31, 2012, income statement?

• A) $3,750 unrealized loss
• B) $11,250 unrealized loss
• C) $1,875 unrealized gain
• D) No unrealized gain or loss

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Definitions:

Accumulated Tax Losses

Accumulated tax losses refer to net losses that a business can carry forward to future tax years, to offset taxable income and reduce tax liabilities.

Optimal Level

The most favorable point, amount, or degree of something for a particular situation, which maximizes efficiency or returns.

M&M Proposition II

Part of the Modigliani-Miller theorem on capital structure, stating that the cost of equity increases with higher levels of debt, as a consequence of the increased risk taken by equity holders.

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.