Treatment of stock transactions on the balance sheet.
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1. Why must Unrealized Gain on Temporary investments in marketable securities at cost be shown on the Balance Sheet as a current asset? Usually gains are shown on the Income Statement?
2. On a loss net of taxes how can the loss be less than the amount of money you lost? Do you pay taxes on a loss?
3. A corporation reports earnings per share of $1.38 for the most recent year and $1.10 for the preceding year. The $1.38 includes a $0.40-per-share gain from insurance proceeds related to a fully depreciated asset that was destroyed by fire. Should the composition of the $1.38 be disclosed in the financial reports? On the basis of the limited information presented, would you conclude that operations had improved or declined?
4. Why would a company consider issuing preferred stock? If they need to raise capital, wouldn't it be better just to borrow the money from a bank?
5. When you sell stock above Par value, why can you not have a gain instead of having to put it in Paid in Capital above Par value?
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Solution Summary
The solution examines the treatment of stock transactions on the balance sheet. Whether you pay taxes on a loss is determined.
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Question 1
Unrealized gains on temporary investments in marketable securities are recorded as current assets rather than unrealized gains in the income statement because unlike unrealized gains in trading securities when these unrealized gains be realized is not known with certainty. Remember that marketable securities though short term investments are not known when they will be sold while trading securities are usually ...
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