Question

Annette purchased stock on March 1, 2018, for $200,000. At December 31, 2018, it was worth $210,000. She also purchased a bond on September 1, 2018, for $20,000. At year end, it was worth $15,000. Determine Annette's realized and recognized gain or loss.

a. Realized gain of $10,000 and recognized gain of $10,000.
b. Realized gain of $5,000 and recognized gain of $5,000.
c. Realized loss of $5,000 and recognized loss of $5,000.
d. Realized loss of $10,000 and recognized loss of $10,000.
e. None of the above.

Answer 1

Annette has a realized and recognized gain of $10,000 on the stock and a realized and recognized loss of $5,000 on the bond, which isn't represented by the given options. Therefore, the correct answer is e. None of the above.

Step-by-step explanation:

To determine Annette's realized and recognized gain or loss on her investments, we need to look at the change in value of the stock and bond from the purchase date to the year-end date. For the stock, Annette purchased it at $200,000 and at year-end, it was worth $210,000, which indicates a realized gain of $10,000. This gain is also recognized because it is the increase in value realized upon assessment or sale.

For the bond, Annette purchased it for $20,000 and it was worth $15,000 at year-end. This indicates a realized loss of $5,000, which is also the recognized loss as it is the loss in value upon assessment. Therefore, even though Annette has a realized gain on the stock, she has a realized loss on the bond.

The correct answer to the question is:

• Realized gain of $10,000 on the stock and recognized gain of $10,000.
• Realized loss of $5,000 on the bond and recognized loss of $5,000.