Question

Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2010 for $50 per share and classified the investment as securities available for sale. Diamond's market value was $60 per share on December 31, 2011, and $65 on December 31, 2012. During 2013, Hawk sold all of its Diamond stock at $70 per share. In its 2013 income statement, Hawk would report:

Answer 1

Hawk Corporation would report a gain of $200,000 on the sale of its Diamond Corporation stock in its 2013 income statement. The accounting treatment of securities available for sale involves marking the investments to fair value at the end of each reporting period.

Step-by-step explanation:

In its 2013 income statement, Hawk Corporation would report a gain on the sale of its Diamond Corporation stock. The accounting treatment of securities available for sale involves marking the investments to fair value at the end of each reporting period. The gains or losses on these securities are recognized in other comprehensive income (OCI) until the securities are sold. The gain is calculated by subtracting the cost of the shares from the proceeds of the sale. Here's the step-by-step calculation:

1. Calculate the cost of the shares: 10,000 shares * $50 per share = $500,000
2. Calculate the proceeds from the sale: 10,000 shares * $70 per share = $700,000
3. Calculate the gain on the sale: $700,000 - $500,000 = $200,000

Therefore, Hawk Corporation would report a gain of $200,000 on the sale of its Diamond Corporation stock in its 2013 income statement. In Hawk's 2013 income statement, it would report a gain on the sale of available-for-sale securities. The total gain on sale would be $200,000, and this amount would be included in the income statement for the year. The gains previously recognized in OCI in the prior years ($100,000 + $150,000) are now reclassified from OCI to the income statement.