On January 2, Year 1, Adam Co. purchased as a long-term investment 10,000 shares of Mill
Corp.’s common stock for $40 a share. These securities were properly classified as
available-for-sale. On December 31, Year 1, the market price of Mill’s stock was $35 a
share, reflecting a temporary decline in market price. On January 28, Year 2, Adam sold
8,000 shares of Mill stock for $30 a share. For the year ended December 31, Year 2, Adam
should report a realized loss on disposal of a long-term investment of

Answer (B) is correct.
A realized loss or gain is recognized when an individual security is sold
or otherwise disposed of. The investment was acquired for $40 per share.
Because the shares were purchased as a long-term investment, they
should be classified as available-for-sale securities. Thus, the temporary
decline in fair value at 12/31/Year 1 was debited to other comprehensive
income and was not included in earnings. Accordingly, the realized loss
included in earnings at 12/31/Year 2 was $80,000 [8,000 shares � ($40 �
$30)].