Six months ago,a company purchased an investment in debt for $70,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.The current fair value of the debt is $68,500.The company should record a:
A)Debit to Unrealized Loss−Equity for $1,500.
B)Credit to Unrealized Gain−Equity for $1,500.
C)Debit to Investment Revenue for $1,500.
D)No entry is required.
E)Credit to Investment Revenue for $1,500.

Question

Quizplus · Accepted Answer

According to the available-for-sale securities accounting treatment, changes in the fair value of the investment are recorded as unrealized gains or losses in equity until the investment is sold. Since the current fair value of the debt is lower than its cost, the company has experienced an unrealized loss of $1,500 ($70,000 - $68,500). Therefore, the entry to record this unrealized loss would be a debit to Unrealized Loss−Equity for $1,500.

Six Months Ago,a Company Purchased an Investment in Debt for $70,000.The