Q) Can anyone help with the following question? A company purchases as a temporary investment 1,000 shares of Air At Land $8.00 per share March 2005. The broker's commission for the purchase was $200. On December 31 2005 Air At Land shares had a market
value of $6. per share that resulted in an allowance of $2,200 to reduce temporary investments to market. In June 2006, 500 Air At Land shares were sold at $7. per share; commission was $100. Assuming that the old Lower-of-cost-and-market (LCM)standard is used, the June 2006 sale of Air At Land shares would result in a loss or gain? Why? Thanks for any input. A) When you purchase the short term investment, you add the cost of commission TO the investment original cost. Original investment cost was 8,000 plus the
200 commission, total cost 8,200. So, the loss is 900. Total cost of investment 8,200 Allowance for writedown 2,200 Cash 7,000 Commission expense 100 Loss on disposal 800