On its December 31, 2013 balance sheet, Simpson Company appropriately reported a
ID: 464856 • Letter: O
Question
On its December 31, 2013 balance sheet, Simpson Company appropriately reported a $4,000 credit balance in its Fair Value Adjustment (Available-for-Sale) account. There was no change during 2014 in the composition of Simpson's portfolio of marketable equity securities held as available-for-sale securities. The following information pertains to that portfolio:
What amount of unrealized loss on these securities should be included in Simpson's shareholders’ equity section of the balance sheet at December 31, 2014?
a. $0
b. $3,000
c. $4,000
d. $7,000
Securit Cost s 50,000 40,000 70,000 $ 65,000 38,000 50,000Explanation / Answer
d. $7,000
The Fair Value Adjustment (Available-for-Sale) account would be increased by $3,000 to a $7,000 credit balance; hence the Unrealized Holding Gain or Loss account would be also adjusted to a $7,000 debit balance. The Unrealized Holding Gain or Loss account is reported as a separate line item in stockholders’ equity; it reflects the net unrealized loss of $7,000 on this portfolio ($160,000 cost $153,000 fair value = $7,000). It is one possible component of Accumulated Other Comprehensive Income.
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