Questions
BU.210.650.51.FA25 Quiz I- Requires Respondus LockDown Browser
Single choice
Smith Company purchases shares of Thompson Company for $60,000 on October 31, 2016. The company classifies the stocks as "trading securities." On December 31, 2016, the fair value of these shares is $75,000. What is the impact of the revaluation of the shares at fair value (December 31, 2016) on the Income Statement and Balance Sheet?
Options
A.No impact on Assets; Net Income increases by $15,000.
B.No Impact on Assets; Other Comprehensive Income increases by $15,000.
C.Assets increase by $15,000; No impact on Net Income or Other Comprehensive Income.
D.Assets increase by $15,000; Other Comprehensive Income increases by $15,000.
E.Assets increase by $15,000; Net Income increases by $15,000.
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Step-by-Step Analysis
The scenario concerns trading securities, where changes in fair value are recognized in net income.
Option 1: 'No impact on Assets; Net Income increases by $15,000.' This is incorrect because the asset base does reflect the fair value increase from 60,000 to 75,000, so Assets rise by 15,000, and the gain is repor......Login to view full explanationLog in for full answers
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