Libby Company purchased equity securities for $100,000 and classified them as available-for-sale securities on September 15, 2016. At December 31, 2016, the current fair value of the securities was $105,000. How should the investment be reported in the 2016 financial statements?
A)The investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost.
B)The $5,000 unrealized gain is reported within the income statement.
C)The $5,000 realized gain is reported within the income statement.
D)The investment in available-for-sale securities would be reported in the balance sheet at its $105,000 fair value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

Question

Quizplus · Accepted Answer

According to GAAP, available-for-sale securities are reported on the balance sheet at fair value, and any unrealized holding gains or losses are reported as a separate component of stockholders' equity. Therefore, the investment should be reported in the balance sheet at its fair value of $105,000, and the unrealized gain of $5,000 should be reported in the stockholders' equity section of the balance sheet. No impact will be made on the income statement until the securities are sold.

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