L & J purchased common shares of Company A and B for $10,000 and $9,000, respectively on 12/15. L & J intends to sell these securities within 30 days. At 12/31, Investments in Company A & B had a fair value of $9,000 and $15,000, respectively. L & J does not have significant influence over the investees. Assuming an existing $1,100 credit balance in Fair Value Adjustment - Equity Investments, what is the unrealized gain or loss for these securities and how is it reported?

Question

Quizplus · Accepted Answer

The unrealized gain is calculated as the change in fair value: ($9,000 - $10,000) + ($15,000 - $9,000) = -$1,000 + $6,000 = $5,000. Adding the existing $1,100 credit balance results in a total unrealized gain of $6,100. Since L & J does not have significant influence and intends to sell within 30 days, these are classified as trading securities, and the unrealized gain is reported as part of Net Income.

L & J Purchased Common Shares of Company a and B