Libby Company purchased equity securities for $170,000 and classified them as av

Question

Libby Company purchased equity securities for $170,000 and classified them as available-for-sale securities. At the end of the year, the fair value of the securities was $175,000. How should the investment be reported in the year-end financial statements? a-The investment in available-for-sale securities would be reported in the balance sheet at its $175,000 market value and an unrealized holding gain would be reported in other comprehensive income. b-An unrealized holding gain would be reported in other comprehensive income. c-The investment in available-for sale securities would be reported in the balance sheet at its $175,000 market value. d-The investment in available-for-sale securities would be reported in the balance sheet at its $170,000 cost.

Explanation / Answer

Ans a the investment in available-for-sale securities would be reported in the balance sheet at its $175,000 market value and an unrealized holding gain would be reported in other comprehensive income.

Available for sale securities are the investment in equity and debt which can be sold in near future. These are valued at fair market value and any gain or loss which is unrealized is not a part of income but it is shown in other comprehensive income when these securities are sold than only the loss or gain is shown in income statement. So $5000 will be shown as unrealized gain in other comprehensive income. And $175000 will be the value shown on asset side as available for sale securities

Available for sale securities Dr. $5000

Unrealized gain on available for sale securities cr. $5000

So in available for sale securities $5000 will be added to $170000.

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