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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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The Boss Inc. reported an unrealized gain on its income statement due to appreciation in the stock price of AMW Corp. How much of AMW does The Boss own, and how has The Boss classified this investment?

a. Owns 35%, trading security

b. Owns 18%, available-for-sale security

c. Owns 9%, trading security

d. Owns over half of AMW and has consolidated the companies’ income statement information

To determine

Concept introduction:

Unrealized Profit: Profit which is not received by the investor. When price of your investment increases but actual profit is arises after the sale before sale it is called unrealized profit. It is a profit which only exits on paper.

To choose:

How much of company boss owns.

Explanation

Explanation for correct answer:

a. Boss owns more than 20% so it is an associate company and so an unrealized profit shown in the income statement of boss and it is a trading security.

Explanation for incorrect answers:

b...

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