Consider the following facts: - Under GAAP, there are three categories of invest

Question

Consider the following facts: - Under GAAP, there are three categories of investments in debt and equity securities. - GAAP dictates different accounting methods for each of these categories. Under each of these accounting methods, the accounting is similar for all of the following accounting elements except: recognition of realized gains and losses on sales initial recording of cost recognition of dividend and interest income none of these choices are correct recognition of unrealized holding gains and losses

Explanation / Answer

Answer

recognition of unrealized holding gains and losses

Note :

There are three categories of investments in debt and equity securities. - GAAP dictates different accounting methods are :

Trading

Available for sale

Held for Maturity

Under Trading Investment , unrealized holding gains and losses is being recorded in Net income Statement

Under Available for sale Investment , unrealized holding gains and losses is being recorded in Other comprehensive Income

UnderHeld for Maturity Investment , unrealized holding gains and losses is not being recorded in Financial Statement.

The following accounting elements are similar to each investment:

recognition of realized gains and losses on sales

initial recording of cost

recognition of dividend and interest income

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