Libby Company purchased equity securities for $100,000 and classified them as trading securities. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

Question

Quizplus · Accepted Answer

According to the accounting standards for trading securities, they should be recorded at fair value on the balance sheet. Therefore, the investment in the trading securities should be reported at its fair value of $105,000. Since the gain is unrealized and the securities are held for trading purposes, it should be recognized in net income in the current period. Therefore, option C is not correct. Option D is partially correct, but only option B is the best choice as it reflects the accurate reporting of the investment in the financial statements.

Libby Company Purchased Equity Securities for $100,000 and Classified Them