Question #6
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 3
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Milburne Company purchased 1,000 shares of Marino Co. for $20 per share on January 1 classified as FVPL. By December 31, shares of Marino were trading at $15 per share in the open market. Marino Co. has 100,000 shares outstanding with a dividend yield of 2% at year end. The impact of the Marino holding on the Milburne income statement is:
Answer Choices:
A. −$5,300
B. −$4,700
C. −$5,000
Explanation
Since these securities are to be classified as FVPL securities, both the dividend received
and the unrealized loss are posted to the income statement. The dividend is computed as
0.02 × $15 × 1,000 = $300 whereas the unrealized loss is $5,000 = ($15 - $20) × 1,000. The
net income statement impact is $300 - $5,000 = -$4,700.