When the market value of a company's portfolio of available-for-sale equity securities is lower than its book value, how should the difference be handled?

Question

Quizplus · Accepted Answer

The difference between the market value and the book value of available-for-sale equity securities, when the market value is lower, should be accounted for using a valuation account that adjusts the investment account. This approach reflects the unrealized loss in the equity section of the balance sheet, without affecting the income statement until the securities are sold or there is evidence of a permanent decline in value.

When the Market Value of a Company's Portfolio of Available-For-Sale