A short-term investment acquired for $11,500 has a year-end market value of $10,000.The adjusting entry involves a:

Question

Quizplus · Accepted Answer

The adjustment entry involves recognizing an unrealized loss on the fair value adjustment of the short-term investment. To record this, we need to debit the Unrealized Loss on Fair-Value Adjustment account for the amount of the loss, which is $1,500 in this case. Therefore, the correct choice is A. Choice B is incorrect because we do not debit the Short-Term Investments account to recognize the loss. Choice C is incorrect because we have a loss, not a gain. Choice D is incorrect because an adjusting entry is required to record the loss.

A Short-Term Investment Acquired for $11,500 Has a Year-End Market