A company purchased a marketable security for $10,000 on 3/3/2013. On 3/30/2013, the company prepared its financial statements and marked the security to its market value, which was $17,500. The security was sold on 4/30/2013 for $15,000. The company used the Trading Securities method to account for the security. The statutory tax rate is 35%. What was the effect of the sale of the security on Income Tax Payable on 4/30/2013?

A company purchased a marketable security for $10,000 on 3/3/2013. On 3/30/2013, the company prepared its financial statements and marked the security to its market value, which was $17,500. The security was sold on 4/30/2013 for $15,000. The company used the Trading Securities method to account for the security. The statutory tax rate is 35%. What was the effect of the sale of the security on Income Tax Payable on 4/30/2013?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A company purchased a marketable security
for $10,000 on 3/3/2013. On 3/30/2013, the
company prepared its financial statements
and marked the security to its market value,
which was $17,500. The security was sold on
4/30/2013 for $15,000. The company used
the Trading Securities method to account for
the security. The statutory tax rate is 35%.
What was the effect of the sale of the security
on Income Tax Payable on 4/30/2013?
$1,750 increase in Income Tax Payable
$1,750 decrease in Income Tax
Payable
$875 increase in Income Tax Payable
There was no effect on Income Tax
Payable
$875 decrease in Income Tax Payable
O O
O O

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