At the end of the first year of operations, the total cost of the trading debt securities portfolio is $245,000. Total fair value is $250,000. The financial statements should show
A) an addition to an asset of $5,000 and a realized gain of $5,000.
B) an addition to an asset of $5,000 and an unrealized gain of $5,000 in the stockholders' equity section.
C) an addition to an asset of $5,000 in the current assets section and an unrealized gain of $5,000 in "Other revenues and gains."
D) an addition to an asset of $5,000 in the current assets section and a realized gain of $5,000 in "Other revenues and gains."

Question

Quizplus · Accepted Answer

The trading debt securities portfolio is a current asset and therefore, the addition of $5,000 should be shown in the current assets section of the financial statements. The difference between the total cost and the total fair value is $5,000, which represents an unrealized gain. Unrealized gains are typically shown in the "Other revenues and gains" section of the income statement. Therefore, option C is the best choice as it correctly shows the addition to an asset in the current assets section and the unrealized gain in "Other revenues and gains."

At the End of the First Year of Operations, the Total