Libby Company purchased equity securities for $100,000 and classified them as available-for-sale 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 accounting standards, available-for-sale securities should be reported at fair value. Therefore, the investment in available-for-sale securities should be reported in the balance sheet at its $105,000 market value. Additionally, any unrealized holding gain or loss should be reported in other comprehensive income until the securities are sold or disposed of, as in this case, an unrealized holding gain of $5,000 should be reported in other comprehensive income. Hence, option B is correct. Option C is also correct as an unrealized holding gain should be reported in other comprehensive income. Therefore, option D is the best choice as it includes the correct answers to the question.

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