On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value of the remaining shares is $29.50 per share. The impact on Jewel's net income as a result of its investment in Marcelo Corp. was a(n):
A) Increase to income of $10,295.
B) Increase to income of $8,050.
C) Increase to income of $2,245.
D) Decrease to income of $3,195.
E) Decrease to income of $5,440.
A) Increase to income of $10,295.
Explanation: Dividend Revenue = 7,000 * $1.15 = $8,050
Gain on sale of investment:
Value of stock sold = [(7,000 shares*$28.53) + 400]/2 = $100,055
Proceeds of stock sale = (3,500 shares *29.30) - $250 = $102,300
Gain on Sale = $102,300 - 100,055 = $2,245
Report on Income statement = $8,050 Div. Rev. + 2,245 Gain = $10,295
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