Baggles Company owns stock in Hampshire Industries, which it intends to hold indefinitely because of some negative tax consequences if sold. Which of the following statements is true regarding Baggles' reporting of the stock?
A) The stock would be classified as trading securities.
B) The stock would be classified as a long-term investment
C) The stock requires no market adjustments since there are no plans to sell it.
D) Any losses on the stock are recorded in the income statement.

Question

Quizplus · Accepted Answer

The stock would be classified as a long-term investment because it is intended to be held indefinitely. Since there are no plans to sell the stock, it would not be subject to market adjustments. Any unrealized losses on the stock would be recorded as an other comprehensive income item, not in the income statement.

Baggles Company Owns Stock in Hampshire Industries, Which It Intends