49.The Shasta Corporation began operations in 2011. Shasta\'s investment portfol

Question

49.The Shasta Corporation began operations in 2011. Shasta's investment portfolio reported the following on December 31, 2011: Available for Sale Trading Cost 300,000 100,000 Fair Value 330,000 90,000 Which of the following is correct with respect to the accounting for Shasta's investment portfolio (ignoring income taxes)? A. Net income was increased $20,000 during 2011. B. Total stockholders' equity was increased $20,000 as of December 31, 2011. C. Net income was increased $10,000 during 2011. D. Total stockholders' equity was decreased $10,000 as of December 31, 2011.

Explanation / Answer

Trading:

Unrealised loss on trading securities = Fair value - Cost price = 100000 - 90000 = 10000

Available for sale:

Increase in net income = Fair value - Cost price = 330000 - 300000 = 30000

Net increase in Stockholders' equity = 30000 - 10000 = 20000

Answer is B. Total stockholders' equity was increased $20000 as of December 31, 2011.

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