LTI Corp.purchased 1000 shares as a short-term investment (no significant influence_for $25,000 on January 4,2017.The market value of these shares at December 31,2017 was $23,400.On December 31,2017,the company received a cash dividend of $0.55 per share.
-The entry to record the adjustment to fair value should include a:

Question

Quizplus · Accepted Answer

When the market value of an investment has decreased, the adjustment to fair value is recorded by crediting the Fair-Value Valuation Allowance account. In this case, the market value of the investment has decreased from $25,000 to $23,400, resulting in a decrease of $1,600. Therefore, the correct entry to record the adjustment would be to credit the Fair-Value Valuation Allowance for $1,600. Option A is incorrect because a debit to the Fair-Value Valuation Allowance account would increase the allowance, which is not appropriate in this scenario. Option B is incorrect because Unrealized Gain on Fair-Value Adjustment account is only used in situations where the market value of the investment has increased, not decreased. Option D is incorrect because the cash dividend received is already recorded separately and has no impact on the adjustment to fair value.

LTI CorpPurchased 1000 Shares as a Short-Term Investment (No Significant Influence_for