Question

On January 1, Black Company's valuation allowance for Trading investment account had a credit balance of $22,500. On December 31, the cost of the trading securities portfolio is $100,000. The fair value is $80,000. Which of the following would Black report?a. an Unrealized Gain on Trading Investments of $18,000.
b. an Unrealized Loss on Trading Investments of $4,500.
c. an Unrealized Gain on Trading Investments of $4,500.
d. an Unrealized Loss on Trading Investments of $18,000.

Answer 1

Answer:

Unrealized gain $2,500

Explanation:

The computation of the unrealized loss or gain is shown below:

Gain = Fair value - book value

Loss is opposite of gain i.e

Loss = Book value - fair value

where,

Fair value is $80,000

And, the book value is

= Cost of trading securities portfolio - credit balance

= $100,000 - $22,500

= $77,500

So, the unrealized gain is

= $80,000 - $77,500

= $2,500

This is the answer and the given options are wrong