Wharton, Inc. pays income taxes on capital gains at a rate of 30 percent.
At December 31, 2000, the company owns marketable securities that cost $50,000 but have a current market value of $180,000.
a. How will users of Wharton's financial statements
be made aware of this substantial increase in the market value of the company's investments?
b. As of December 31, 2000, how much income taxes has Wharton paid on the increase in value of these investments? Explain.
c. make journal entry at January 4, 2001, to record the sale of these investments for $180,000 in cash.
d. What effect will this transaction have on Wharton's income tax obligation for 2001?
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