Six months ago,a company purchased stock investments with insignificant influence for $70,000.This is the company's first and only purchase of stock.The current year-end fair value of the stock is $68,500.The company should record a:
A)Debit to Unrealized Loss-Income for $1,500.
B)Debit to Unrealized Gain-Equity for $1,500.
C)Debit to Investment Revenue for $1,500.
D)Credit to Dividend Revenue for $1,500.
E)Credit to Investment Revenue for $1,500.

Question

Quizplus · Accepted Answer

When the fair value of an investment with insignificant influence decreases below its cost, the company should recognize an unrealized loss in the income statement. In this case, the fair value is lower than the cost, so the company should record a debit to Unrealized Loss-Income for the difference between the two amounts, which is $1,500 ($70,000 - $68,500). Therefore, the correct answer is A.

B) Debit to Unrealized Gain-Equity is not correct because the fair value decreased, so there is no gain.

C) Debit to Investment Revenue is not correct because the company did not sell the investment or receive any dividends.

D) Credit to Dividend Revenue is not correct because the company did not receive any dividends.

E) Credit to Investment Revenue is not correct because the company did not sell the investment or receive any dividends.

Six Months Ago,a Company Purchased Stock Investments with Insignificant Influence