A small long-term investment in equity securities was purchased on May 2 for $1,000. On December 31, the market value of those securities is $1,100. Which of the following is part of the adjusting entry necessary on December 31?

Question

Quizplus · Accepted Answer

The adjusting entry necessary on December 31 is to recognize the unrealized gain on the equity securities. Unrealized gain is the increase in value of an investment that has not yet been sold. Therefore, we need to credit Unrealized Gain for the increase in value, which is $100. The correct entry would be: 
Debit Unrealized Gain for $100
Credit Short-term Equity Investments for $100. 
Therefore, the best choice is D, Credit Unrealized Gain for $100.

A Small Long-Term Investment in Equity Securities Was Purchased on May