A not-for-profit hospital purchased stock for $11,000 in March but by December 31,its fair value had dropped to $8,000.Assuming the hospital didn't sell the stock at December 31,how should the unrealized loss be reported in the hospital's operating statement?

Question

Quizplus · Accepted Answer

The unrealized loss should be reported below "Excess of revenues over expenses" on the operating statement as a separate line item. This is because the hospital has not actually sold the stock and therefore the loss is not realized. Reporting the loss as a direct addition to net assets (choice B) would not be accurate as it would falsely increase the hospital's net assets. Reporting the loss before "Excess of revenues over expenses" (choice C) would also not be appropriate as it could be misleading to financial statement users. Finally, choice D is not correct as GAAP requires that investments be reported at fair value, so the stock should be reported at $8,000 on the balance sheet, with the unrealized loss included in the operating statement.

A Not-For-Profit Hospital Purchased Stock for $11,000 in March but by December