L & J purchased common shares of Company A and B for $10,000 and $12,000,respectively on 12/15.L & J intends to sell these securities within 30 days.At 12/31,Investments in Company A & B had a fair value of $9,000 and $15,000,respectively.Assuming an existing $1,500 credit balance in Fair Value Adjustment - Trading Equity Securities,what is the unrealized gain or loss for these securities and how is it reported?

Question

Quizplus · Accepted Answer

The fair value of Company A's shares decreased by $1,000, resulting in an unrealized loss of $1,000. The fair value of Company B's shares increased by $3,000, resulting in an unrealized gain of $3,000. The total unrealized gain is therefore $3,000 - $1,000 = $2,000. However, there is already an existing credit balance of $1,500 in Fair Value Adjustment - Trading Equity Securities, so the net unrealized gain is $2,000 - $1,500 = $500. This is reported as part of Net Income because L & J intends to sell these securities within 30 days. Therefore, the best choice is B.

L & J Purchased Common Shares of Company a and B