BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Debit Fair Value Adjustment-Available-for-Sale for $1, 500 and credit Unrealized Gain or Loss-Equity for $1, 500.
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Debit Fair Value Adjustment-Available-for-Sale for $600 and credit Unrealized Gain or Loss-Equity for $600.
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Debit Fair Value Adjustment-Available-for-Sale for $2, 400 and credit Unrealized Gain or Loss-Equity for $2, 400.
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Debit Unrealized Gain or Loss-Equity for $2, 400 and credit Fair Value Adjustment-Available-forSale for $2, 400.
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Detailed explanation-1: -When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included in before-tax net income. Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee. The equity method is in many ways a partial consolidation.
Detailed explanation-2: -Available-for-sale securities are reported at fair value; changes in value between accounting periods are included in accumulated other comprehensive income in the equity section of the balance sheet.
Detailed explanation-3: -What Is an Unrealized Gain? The term unrealized gain refers to an increase in the value of an asset, such as a stock position or a commodity like gold, that has yet to be sold for cash. As such, an unrealized gain is one that takes place on paper, as it has yet to be realized.
Detailed explanation-4: -Debt securities classified as available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a net amount in a separate component of shareholders’ equity, subject to impairment.