Libby Company purchased debt securities for $100,000 and classified them as available-for-sale securities on September 15,2019.At December 31,2019,the current fair value of the debt securities was $105,000.How should the investment be reported in the 2019 financial statements?
A)The debt investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost.
B)The $5,000 unrealized gain is reported within the income statement.
C)The $5,000 realized gain is reported within the income statement.
D)The debt investment in available-for-sale securities would be reported in the balance sheet at its $105,000 fair value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

Question

Quizplus · Accepted Answer

According to accounting standards, available-for-sale securities should be reported at fair value, and any unrealized holding gains or losses should be reported as a separate component of stockholders' equity until realized. Therefore, the debt investment should be reported at its current fair value of $105,000 on the balance sheet, and an unrealized holding gain of $5,000 (=$105,000 fair value - $100,000 cost) should be reported in the stockholders' equity section of the balance sheet. No entry should be made in the income statement because the gain is unrealized.

Libby Company Purchased Debt Securities for $100,000 and Classified Them