If the cost of an available-for-sale security exceeds its fair value by $40000 the entry to recognize the loss
A) is not required since the share prices will likely rebound in the long run.
B) will show a debit to an expense account.
C) will show a credit to a contra-asset account that appears in the stockholders' equity section of the balance sheet.
D) will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.

Question

Quizplus · Accepted Answer

The entry to recognize the loss would involve debiting an unrealized loss account and crediting the available-for-sale security account. The unrealized loss account is a contra-asset account that is deducted in the stockholders' equity section of the balance sheet. Therefore, choice D is the correct answer. Choice A is incorrect because it assumes the share prices will rebound without any evidence. Choice B is incorrect because the loss is not an actual expense but a reduction in the value of an asset. Choice C is incorrect because there is no contra-asset account that appears in the stockholders' equity section of the balance sheet.

If the Cost of an Available-For-Sale Security Exceeds Its Fair