Rye Company purchased 15% of Lena Company's common stock during 2016 for $150,000. The Investment in Lena had a $160,000 fair value at the end of 2016 and a $140,000 fair value at the end of 2017. Which of the following statements is incorrect if Rye classifies the investment as an available-for-sale security?

Question

Quizplus · Accepted Answer

Option C is incorrect because under the available-for-sale category, unrealized losses are included in net income in the year they occur. Option A is correct - unrealized gains/losses are not included in net income under available-for-sale until sold. Option B is also correct - unrealized losses are not included in net income until sold. Option D is incorrect because the unrealized gain/loss is reported in the comprehensive income section of the balance sheet, not in the stockholders' equity section.

Rye Company Purchased 15% of Lena Company's Common Stock During