At the beginning of the year, the permanent fund of Rapid City had an investment portfolio with a historical cost of $300,000 and a fair value of $330,000.There were no purchases or sales of securities during the year.At year end the portfolio had a fair value of $360,000.At the end of the year Rapid City will account for this increase in fair value in which of the following ways?

Question

Quizplus · Accepted Answer

The increase in fair value of $30,000 is recognized as investment income in the income statement. This will be credited to the Investment income account. Therefore, choice A is the correct answer. Choice B is incorrect because the increase in fair value is only $30,000, not $60,000. Choice C is incorrect because the increase in fair value should be recognized in the income statement, not in the fund balance. Choice D is incorrect because the increase in fair value should be recognized as investment income.

At the Beginning of the Year, the Permanent Fund of Rapid