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On January 1, 2019, Zhang Inc
On January 1, 2019, Zhang Inc. had cash and share capital of $10,000,000. At that date, the company had no other asset, liability, or equity balances. On January 5, 2019, it purchased for cash $6,000,000 of equity securities that it classified as non-trading. It received cash dividends of $800,000 during the year on these securities. In addition, it has an unrealized loss on these securities of $600,000. The tax rate is 30%. Compute the amount of net income/loss). Select one:
a. $560,000
b. $640,000
c. $160,000
d. $200,000
e. $800,000
Expert Solution
Answer:
| Income Statement | |
| Dividends received | 800000 |
| Less: Tax at 30%(800000*30%) | 240000 |
| Net income | 560000 |
| Answer: a. $ 560000 |
| Note: |
| Unrealised loss , ie. holding period loss on the non-trading securities,will be debited directly to the Other Comprehensive Income & carried under the equity section , on the Liability side of the Balance sheet. |
| It will not affect the Income statement. |
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