Rye Company purchased 15% of Lena Company's common stock during 2014 for $150,000. The 15% investment in Lena had a $160,000 fair value at the end of 2014 and a $140,000 fair value at the end of 2015. Which of the following statements is incorrect if Rye classifies the investment as an available-for-sale security?

Question

Quizplus · Accepted Answer

If Rye classifies the investment as an available-for-sale security, the unrealized gains and losses are not included in Lena's net income but rather recorded as a component of other comprehensive income in Rye's financial statements. Therefore, statement C is incorrect. Option A is correct as the 2014 unrealized gain of $10,000 is reported as a component of other comprehensive income in Rye's financial statements. Option B is also correct as the 2015 unrealized loss of $20,000 is recorded as a component of other comprehensive income in Rye's financial statements. Option D is incorrect as the 2014 unrealized gain is recorded as a component of other comprehensive income in Rye's financial statements and not on Lena's balance sheet.

Rye Company Purchased 15% of Lena Company's Common Stock During