Question:
Jessup Corporation, which is publicly held, purchased 13,000 shares of ABC stock as a short-term investment for $85,000. At year-end, FMV of the ABC stock was $93,000. For financial reporting purposes, Jessup uses the mark-to-market method to account for its ABC investment. Consequently, it wrote up the book value of the stock to $93,000 and recorded $8,000 book income.
(a) Does Jessup have a difference in its book and tax income with respect to the ABC stock?
(b) Next year, Jessup sells the 13,000 ABC shares for $105,250 cash. Does this transaction result in a book/tax difference?