Question

Instrument Corporation has the following investment which was held throughout 2021-2022:

Fair Value
Cost 12/31/21 12/31/22
Equity investment $900,000 $1,200,000 $1,140,000

What amount of gain or loss would Instrument Corporation report in its income statement for the year ended December 31, 2022 related to its investment? You must include number followed by gain or loss to receive points.

Answer 1

Instrument Corporation would report a gain of $240,000 in its income statement for the year ended December 31, 2022, related to its equity investment, as the fair value increased from $900,000 to $1,140,000 during that period.

Step-by-step explanation:

The student has presented a case where Instrument Corporation holds an equity investment, which has a cost basis of $900,000 at the beginning of the year. At the end of the year, the fair market value of the investment is $1,140,000. To determine the gain or loss on this investment for the income statement, we must calculate the change in value during the given period.

Since the investment increased in value, from the cost basis of $900,000 to a fair value of $1,140,000 at the end of the year, we subtract the original cost from the fair value at year's end. Thus, the calculation is $1,140,000 (Fair Value on 12/31/22) - $900,000 (Cost) = $240,000. Therefore, Instrument Corporation would report a gain of $240,000 in its income statement for the year ended December 31, 2022, related to its investment.