Question
Microloft Inc. pays income taxes on capital gains at a rate of 25 %. At 31. December 2020, the company owns marketable securities that cost
Microloft Inc. pays income taxes on capital gains at a rate of 25 %. At 31. December 2020, the company owns marketable securities that cost $ 475.000 but have a current market value of
$ 730.000.
a) How will the users of Microlofts financial statements be made aware of this substantial increase in the market value of the companys investment ? Provide Journal entry if needed. (4 points)
b) Provided the value increase of marketable securities as of 31. December 2020, what income taxes Microloft will have to pay for this ? Explain and calculate if possible. (4 points)
c) Prepare all necessary journal entries at 5. March 2021 to record the cash sale of these investments at $ 398.000. (4 points)
d) What effect will the sale recorded in part c) have on Microlofts tax obligation for 2021 ?
(4 points)
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