What is a "holding gain?"
A)the increase in owners' equity resulting from maintaining monetary assets during a period of inflation
B)the increase in income caused by the use of general purchasing power accounting during a period of inflation
C)the increase in owners' equity resulting from holding nonmonetary assets during a period of inflation
D)the increase in income caused by paying liabilities with cheaper dollars

Question

Quizplus · Accepted Answer

A holding gain refers to the increase in owners' equity resulting from holding nonmonetary assets during a period of inflation. This occurs because the value of nonmonetary assets tends to increase during inflation. For example, if a company owns a piece of real estate during a period of inflation, the value of that property will likely increase, resulting in a holding gain for the company. Option A is incorrect because it refers to maintaining monetary assets, which do not increase in value during inflation. Option B is incorrect because it refers to the use of general purchasing power accounting, which adjusts for inflation but does not result in a holding gain. Option D is incorrect because paying liabilities with cheaper dollars does not result in an increase in owners' equity.

What Is a "Holding Gain