Final answer:
According to GAAP, income from appreciation of Trading Securities is not recognized on the income statement. ABC, Inc. must only recognize any realized gains on the sale of Trading Securities as gross income on its tax return.
Step-by-step explanation:
True or False - ABC, Inc. recognizes $100,000 of income due to appreciation, but not sale, of Trading Securities in its financial statements prepared according to GAAP. ABC must also recognize $100,000 of gross income on its tax return.
The statement is False.
According to GAAP (Generally Accepted Accounting Principles), income from appreciation of Trading Securities is not recognized on the income statement. Instead, the unrealized gains or losses are reported in the equity section of the balance sheet under the comprehensive income statement. This means that ABC, Inc. will not recognize the $100,000 of income due to appreciation of Trading Securities in its financial statements prepared according to GAAP.
On the other hand, for tax purposes, ABC, Inc. must recognize any realized gains on the sale of Trading Securities as gross income on its tax return. If no sale has occurred, there would be no recognized gross income on the tax return specifically due to the appreciation of Trading Securities.