ch12 - CPA Exam Questions Chapter 12 1. d....

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CPA Exam Questions Chapter 12 1. d. Sales price (2,000 shares x $14) $28,000 Less: Brokerage commission (1,400) Net Proceeds $26,600 Less: Cost of investment (31,500) Realized loss on trading security $(4,900) If these securities had been categorized as available-for-sale, the total loss of $4,900 would have been recognized in net income. The prior year's unrealized holding loss would not have been included (recognized) in earnings (net income), but rather would have been reported as an element of other comprehensive income. A reclassification adjustment for the unrealized holding loss ($2,000) would also be included in other comprehensive income to remove it from the balance sheet and report it in income. Note: The question asks for realized loss. This is defined as the net cash proceeds from sale minus the original cost of the investment. That realized loss was recognized over two accounting periods: Year 4 ( unrealized loss) and Year 5 ( realized , due to sale). Be careful when answering these questions: watch for the difference between loss realized and loss recognized .
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CPA Review Questions (continued) 2. a. Marketable equity securities (equity securities with readily determinable fair values) are categorized as either trading securities (which are classified as current assets) or available-for- sale securities (which are classified as current or noncurrent assets), as appropriate. Because Lark’s investments are long-term, they are categorized as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized holding gains and losses reported in other comprehensive income and included in the balance of accumulated other comprehensive income reported in equity. The unrealized
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ch12 - CPA Exam Questions Chapter 12 1. d....

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