If the combined market value of trading securities at the end of the year is less than the market value of the same portfolio of trading securities at the beginning of the year, the difference should be accounted for by

Question

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A decrease in the value of trading securities should be recognized as an unrealized loss in the income statement in the period that it occurs. This is in accordance with the accrual accounting principle of matching expenses to the period in which they are incurred. Option A is incorrect because unrealized gains or losses on trading securities are reported in the income statement, not in the stockholders' equity section of the balance sheet. Option C is incorrect because a footnote cannot replace the recognition of an unrealized loss in the income statement. Option D is incorrect because a credit to Investment in Trading Securities would imply that the company sold the securities, which is not necessarily the case. Option E is incorrect because there is a correct answer.

If the Combined Market Value of Trading Securities at the End