Griffin buys and sells securities and typically classifies them as available for sale.On December 15,Griffin purchased $800,000 of Baker Corporation shares and elected the fair value option to account for the investment.As of December 31,the shares in Baker Corporation had a fair value of $875,000.In its December 31 financial statements,Griffin will report pretax ________.

Question

Quizplus · Accepted Answer

Griffin elected the fair value option, which means they will recognize the changes in fair value in their income statement as investment income. Since the fair value increased by $75,000 ($875,000 - $800,000), Griffin will report pretax investment income of $75,000 in its income statement. Option B is incorrect because other comprehensive income is used for unrealized gains and losses on available for sale securities, not those accounted for using the fair value option. Option C is incorrect because the investment in Baker Corporation is still $800,000; the fair value adjustment is recognized separately as investment income. Option D is incorrect because accumulated other comprehensive income pertains to unrealized gains and losses on available for sale securities, not those accounted for using the fair value option.

Griffin Buys and Sells Securities and Typically Classifies Them as Available