Clay sold its investment in Firm A for €44.50 per share
Clay Company owns the following marketable securities, all of which were purchased at the beginning of 2021:
Firm | # Shares Owned by Clay | Ownership Held by Clay | Clay’s Cost | Market Value (12/31/21) | Annual Dividend | Total 2021 Earnings |
A | 50,000 | 15% | €40.00 | €46.00 | €0.75 | €50,000 |
B | 100,000 | 25% | €10.00 | €12.00 | €0.30 | €100,000 |
C | 75,000 | 10% | €25.00 | €24.00 | €0.60 | €80,000 |
Clay Company follows International Financial Reporting Standards (IFRS).
9. On January 31, 2022, Clay sold its investment in Firm A for €44.50 per share. If the investment is reported at fair value through profit and loss, what is the impact of the sale on Clay’s 2022 pretax income?
a. €75,000 net loss
b. €225,000 net gain
c. €2,225,000 net gain
See also (Solution) Carrying value of Clay Company’s marketable securities
Solution
To determine the impact of the sale of Clay Company’s investment in Firm A on its 2022 pretax income, we will follow a detailed step-by-step calculation.
Firm A’s Investment
- Shares Owned: 50,000
- Cost per Share: €40.00
- Market Value at Year-End (2021): €46.00
- Sale Price per Share on January 31, 2022: €44.50
Related Answer : (Solution) Clay is considering reclassifying its investment in Firm C from fair value
Step 1: Calculate the Sale Price of Firm A’s Investment
To find the total sale price of Firm A’s shares:
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