Smith buys and sells securities which it typically classifies as available for sale. On December 15, 2009, Smith purchased $500,000 of Jones shares, and elected the fair value option to account for the Jones investment. As of December 31, 2009, the Jones shares had a fair value of $525,000. In the 2009 financial statements, Smith will show (ignore taxes):
A)investment income of $25,000 on their income statement.
B)other comprehensive income of $25,000.
C)accumulated other comprehensive income of $525,000.
D)an investment in Jones of $500,000.

Question

Quizplus · Accepted Answer

Smith elected the fair value option for the Jones investment, meaning changes in fair value are recognized in the income statement. The increase in fair value from $500,000 to $525,000 results in investment income of $25,000.

Smith Buys and Sells Securities Which It Typically Classifies as Available