In recognizing a decline in the fair value of short-term stock investments an unrealized loss account is debited because
A) management intends to realize this loss in the near future.
B) the securities have not been sold.
C) the stock market is volatile.
D) management cannot determine the exact amount of the loss in value.

Question

Quizplus · Accepted Answer

The unrealized loss account is debited to recognize a decline in the fair value of short-term stock investments that have not been sold. Management may choose to wait and hold onto the securities in hopes of a rebound in value or sell them at a loss. The reason for debiting the account is to accurately reflect the decrease in value on the financial statements. The other options are not relevant to the accounting treatment of unrealized losses.

In Recognizing a Decline in the Fair Value of Short-Term