Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities on September 15, 2014. At December 31, 2014, the current market value of the securities was $105,000. How should the investment be reported in the 2014 financial statements?

Question

Quizplus · Accepted Answer

Under the available-for-sale classification, changes in market value are reported as unrealized holding gains or losses in the stockholders' equity section of the balance sheet. Therefore, the investment in available-for-sale securities should be reported on the balance sheet at its current market value of $105,000, and the $5,000 unrealized holding gain should be reported in the stockholders' equity section. The unrealized gain should not be reported in the income statement because it is not a realized gain until the securities are sold.

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