Investments at fair value through other comprehensive income with a cost of $22,000 have a current market value of $22,600. The adjusting entry will require a:

Question

Quizplus · Accepted Answer

Investments at fair value through other comprehensive income are reported at their fair value on the balance sheet. The increase in fair value results in an unrealized gain that is reported in Other Comprehensive Income on the statement of financial position. The adjusting entry needed in this scenario will increase the fair value of the investment by $600, so it will require a credit of $600 to Other Comprehensive Income. Therefore, option A is the correct choice. 
When investments are classified as "fair value through other comprehensive income" (FVOCI), any unrealized gains or losses due to changes in the fair value of the investments are not reported in the income statement. Instead, they are reported in other comprehensive income until the investment is sold or otherwise disposed of.
In this case, the investments had a cost of $22,000 and their current market value is $22,600, which means there is an unrealized gain of $600 ($22,600 - $22,000). To record this unrealized gain, the adjusting entry would be:
Debit: Investments at FVOCI (to increase the asset value on the balance sheet) $600
Credit: Other Comprehensive Income (to record the unrealized gain in equity) $600
This entry reflects the increase in the value of the investment without affecting the net income for the period. The gain will be reported as part of other comprehensive income in the equity section of the balance sheet.

Investments at Fair Value Through Other Comprehensive Income with a Cost