Short-term marketable equity securities were acquired on July 1, Year 1 for $23,000, and classified as available-for-sale.On December 31, Year 1, the securities had a market value of $24,000, determined as follows: What adjustment is required to reflect December 31, Year 1 fair value?

Question

Short-term marketable equity securities were acquired on July 1, Year 1 for $23,000, and classified as available-for-sale.On December 31, Year 1, the securities had a market value of $24,000, determined as follows:  What adjustment is required to reflect December 31, Year 1 fair value?

Quizplus · Accepted Answer

The adjustment required to reflect the fair value on December 31, Year 1 is an unrealized holding gain on available-for-sale securities of $1,000, which is reported in other comprehensive income. This is because available-for-sale securities are reported at fair value in the balance sheet and any changes in fair value are recognized in other comprehensive income until the securities are sold or deemed to be impaired. The unrealized holding gain is not recognized in the income statement until the securities are sold. Therefore, option A is the correct answer.

Short-Term Marketable Equity Securities Were Acquired on July 1, Year