On May 1, Jorge Co. purchases 2,000 shares of Radiotech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Jorge's year-end), the stock had a market value of $28,000. Jorge should record a credit to Unrealized Gain-Equity for $3,000.

Question

Quizplus · Accepted Answer

This statement is true. Since the investment is classified as available-for-sale, any unrealized gains or losses are reported as a separate component of equity. In this case, since the market value of the stock has increased by $3,000 ($28,000 - $25,000), the unrealized gain should be recorded as a credit to Unrealized Gain-Equity.