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22 October, 04:26

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000 shares currently outstanding. This is the company's first and only stock investment. On October 31, which is Potter's year-end, the stock had a fair value of $20,000. Potter should record a:

a. Debit to Unrealized Loss-Income for $4,000.

b. Credit to Unrealized Gain-Income for $4,000.

c. Credit to Investment Revenue for $4,000.

d. Debit to Unrealized Gain-Equity for $4,000.

e. Credit to Fair Value Adjustment-Stock for $4,000.

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Answers (2)
  1. 22 October, 04:35
    0
    correct option is b. Credit to Unrealized Gain-Income for $4,000.

    Explanation:

    given data

    purchased = 2,000 shares

    GigaTech stock = $16,000.

    currently outstanding = 100,000

    fair value = $20,000

    solution

    as we know Fair Value of the stock is $20,000 and Book Value of stock is $16,000 so here

    Unrealised is Gain Income that is = fair value - Book Value ... 1

    Unrealised is Gain Income = $20,000 - $16,000

    Unrealised is Gain Income = $4,000

    so correct option is b. Credit to Unrealized Gain-Income for $4,000.
  2. 22 October, 04:38
    0
    Option (b) is correct.

    Explanation:

    Unrealized Gain (Income):

    = Fair Value of the stock - Book Value of stock

    = $20,000 - $16,000

    = $4,000

    Therefore, the journal entry is as follows:

    October 31,

    Investment - Available for sale securities A/c Dr. $4,000

    To Unrealized Gain-Income $4,000

    (To record the unrealized income)
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Home » Business » On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. GigaTech has 100,000 shares currently outstanding. This is the company's first and only stock investment.
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