Question

On its December 31, 2020, balance sheet, Trafton Company reported its investment in equity securities, which had cost $600,000, at fair value of $560,000. At December 31, 2021, the fair value of the securities was $585,000. What should Trafton report on its 2021 income statement as a result of the increase in fair value of the investments in 2021?

Answer 1

Unrealized gain of $25,000

Step-by-step explanation:

Calculation for what Trafton will report on its 2021 income statement

Since we were told that the company had fair value of the amount of $560,000 At the end of the year in which we were still told that the fair value of the securities was the amount of $585,000 which means that Trafton will report an UNREALIZED GAIN of the amount of $25, on its 2021 income statement calculated as:

Using this formula

Income statement = 31 December Fair value of securities - Fair value investment in equity securities

Let plug in the formula

Income statement =$585,000 - $560,000

Income statement= $25,000 Unrealized gain

Therefore Trafton will report Unrealized gain of the amount of $25,000 on its 2021 income statement