Yankton Company began the year without an investment portfolio. During the year,
ID: 2454809 • Letter: Y
Question
Yankton Company began the year without an investment portfolio. During the year, it purchased investments classified as available-for-sale securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show
a loss of $2,000 on the income statement and available-for-sale investments of $13,000 on the balance sheet
no loss on the income statement, available-for-sale investments netting to of $11,000, and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet
no loss on the income statement and available-for-sale investments of $13,000 on the balance sheet
Explanation / Answer
Unrealized gain on AFS security = Market value - Cost = $(11,000 - 13,000) = - $2,000 (Loss)
An unrealized loss on AFS securities is not reported in income statement. Instead, the corresponding asset account is credited with a loss and the Other Comprehensive Income (Equity in balance sheet) is debited with the loss.
So, AFS Investments nets to $11,000 & $2,000 unrealized loss is a stockholder equity adjustment.
Correct option (b)
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