On May 15, 2020, Croissant Corp. purchased 1,000 common shares of Holter Inc. for $ 24,000, as a Fair Value through Net Income (FV-NI) equity investment. At December 31, 2020, the fair value of these shares was $ 23,100. The required adjusting entry to reflect this fact is
A) debit Fair value-Net Income Investment, credit Holding Gain on Investment (OCI) $ 23,100.
B) debit Holding Gain on Investment (OCI), credit Fair value-Net Income Investment $ 23,100.
C) debit Fair value-Net Income Investment, credit Investment Income $ 15,900.
D) debit Investment Loss, credit Fair value-Net Income Investment $ 900.

Question

Quizplus · Accepted Answer

The correct answer is to recognize the decrease in fair value of the investment by debiting Investment Loss and crediting Fair value-Net Income Investment for the difference between the purchase price ($24,000) and the fair value at year-end ($23,100), which is $900. This reflects the loss in value of the investment in the income statement, consistent with the FV-NI classification.