On July 31,Potter Co.purchased 2,000 shares of GigaTech stock for $16,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On October 31,which is Potter's year-end,the stock had a fair value of $20,000.Potter should record a:
A) Credit to Unrealized Gain-Equity for $4,000.
B) Credit to Market Adjustment-Available-for-Sale for $4,000.
C) Credit to Investment Revenue for $4,000.
D) Debit to Unrealized Loss-Equity for $4,000.
E) Debit to Unrealized Gain-Equity for $4,000.

Question

Quizplus · Accepted Answer

BFor available-for-sale securities, unrealized gains or losses are reported in other comprehensive income, not in earnings. Therefore, a credit to Unrealized Gain-Equity (A) for $4,000 reflects the increase in fair value in equity. Additionally, the adjustment to the carrying amount of the investment is recorded with a Credit to Market Adjustment-Available-for-Sale (B) for $4,000, which aligns the book value of the investment with its fair market value.