McGinn Company purchased 10% of RJ Company's common stock during 2014 for $100,000. The 10% investment in RJ had a $90,000 fair value at the end of 2014 and a $105,000 fair value at the end of 2015. Which of the following statements is incorrect if McGinn classifies the investment as an available-for-sale security?
A) The 2014 unrealized loss is $10,000, but is not included in McGinn's 2014 net income.
B) The 2015 unrealized gain is $15,000, but is not included in McGinn's 2015 net income.
C)The 2015 unrealized gain is $10,000 and is included in McGinn's 2015 net income.
D)The 2014 unrealized loss is $10,000 and is reported on McGinn's balance sheet as a component of stockholders' equity.

Question

Quizplus · Accepted Answer

If McGinn classifies the investment as an available-for-sale security, both the unrealized loss in 2014 and the unrealized gain in 2015 would be reported in other comprehensive income on the balance sheet rather than in the net income statement. Therefore, statement C is incorrect as the unrealized gain in 2015 would not be included in McGinn's net income.

McGinn Company Purchased 10% of RJ Company's Common Stock During