[ThdDoublr206]

Cook Company had the following investment portfolio of stocks that were purchased during 2010.

Stock Classification Cost Fair Value 12-31-10

Company R Available-for-sale $30,000 $32,000

Company S Trading $42,000 $46,000

Company T Available-for-sale $15,000 $18,000

Cook elects to use the fair value option for reporting all of its financial assets. What is the unrealized gain recognized on the income statement in 2010?

A. $0

B. $4,000

C. $5,000

D. $9,00

I answered $4000 for the gain in the fair value of the trading security and was incorrect?

Wouldn’t the unrealized gain/loss on the available for sale be socked away on OCI?

Thanks as usual

[katiekanton]

I haven't done FAR yet, and it's been years since I had this in school, but I seem to remember we don't ever recognize on the income statement “unrealized gains”. It would go in OCI. So my vote is A. Again, I probably don't know what I'm talking about.

AUD - 88
FAR - 90
REG - 85
BEC - 88

[ThdDoublr206]

Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as “trading” securities and reported at fair value, with unrealized gains and losses included in earnings

[Anonymous]

Hi I'm new here. The answer should be D. $9,000 because when electing to use the fair value option, all types of securities are revalued at the end of a period and unrealized gains and losses go on the income statement.

[Author]

Replies