Centrex Corporation Purchased 500 Shares of Pfizer Stock at $50

question 83

Multiple Choice

Centrex Corporation purchased 500 shares of Pfizer stock at $50 per share.The managers of Centrex Corporation intend to sell the shares as soon as their target price is reached,which will probably be within the next three months.During the holding period,the market price of the stock went up $5 per share.How should Centrex account for the change in value?

• A)A footnote describing the increase in value should be part of the financial statements.
• B)An unrealized gain of $2,500 should be shown on the income statement.
• C)A realized gain of $2,500 should be shown on the income statement.
• D)The gain should not be reported,since stock prices go up and down on a daily basis.

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Definitions:

Equity Multiplier

A financial leverage ratio that measures the proportion of a company's assets that are financed by its shareholders' equity.

Total Assets

The sum of all resources owned by a company, valued in monetary terms, which includes both current and non-current assets.

Total Common Equity

The total of equity capital and retained earnings in a company, signifying the stake held by common shareholders.

Equity Multiplier

A financial ratio that measures a company's total assets financed by its stockholders' equity, demonstrating leverage.