On May 1, Franke Co. purchases 2,000 shares of Computech for $25,000. This investment is considered to be an available-for-sale securities. On July 31 (Franke's year-end), these shares had a market value of $28,000. Franke should record a credit to Gain on Investment for $3,000.

Question

Quizplus · Accepted Answer

When the market value of an available-for-sale security increases, a gain is recognized in other comprehensive income (OCI) until the security is sold, at which point the gain is recorded in the income statement. Therefore, the correct entry on July 31 would be to credit OCI for $3,000, not Gain on Investment.