The valuation principle of "fair value accounting" applied to investments classified as available-for-sale securities:
A)Affects the current period income statement,but not the balance sheet.
B)Enhances usefulness of the balance sheet in evaluating the financial position of a business.
C)Applies to marketable securities and inventories.
D)Requires a corporation to adjust its capital stock account to reflect current market value of its outstanding capital stock.

Question

Quizplus · Accepted Answer

The valuation principle of "fair value accounting" applied to investments classified as available-for-sale securities enhances the usefulness of the balance sheet in evaluating the financial position of a business. This means that the fair value of these securities is reported on the balance sheet, providing more relevant and reliable information for investors and other stakeholders. It does not affect the income statement directly, as any gains or losses are recorded in other comprehensive income until the security is sold. It only applies to marketable securities, not inventories. Adjusting the capital stock account to reflect current market value is not required under fair value accounting principles.

The Valuation Principle of "Fair Value Accounting" Applied to Investments