On September 13,2013,MTA Corp.acquired 50 shares of Vista,Inc.for $100 per share as a long-term available-for-sale security.At December 31,2013,the Vista shares had a fair value of $105 per share and MTA recorded the required adjusting entry to record the fair value of the Vista investment.At December 31,2104,the Vista shares had a fair value of $102 per share.How would the company record the adjustment to fair value?
A)Debit Fair Value Adjustment-Available-for-Sale (LT) for $250 and credit Unrealized Gain-Equity for $250.
B)Debit Fair Value Adjustment-Available-for-Sale (LT) for $100 and credit Unrealized Gain-Equity for $100.
C)Debit Unrealized Gain-Equity for $300 and credit Fair Value Adjustment-Available-for-Sale (LT) for $300.
D)Debit Unrealized Gain-Income for $150 and credit Fair Value Adjustment-Available-for-Sale (LT) for $150.
E)Debit Unrealized Gain-Equity for $150 and credit Fair Value Adjustment-Available-for-Sale (LT) for $150.

Question

Quizplus · Accepted Answer

When the fair value of available-for-sale securities decreases, the company should record a debit to Unrealized Gain or Loss-Equity and a credit to the Fair Value Adjustment-Available-for-Sale (LT) account. The decrease in fair value is $3 per share ($105 - $102), so the adjustment will be $150 overall ($3 per share x 50 shares). Therefore, the correct entry will be to debit $150 to Unrealized Gain-Equity and credit $150 to Fair Value Adjustment-Available-for-Sale (LT). Option E is the only one that matches this entry.