A company\'s noncurrent portfolio of marketable equity securities consists of th

Question

A company's noncurrent portfolio of marketable equity securities consists of the common stock of one company. At the end of the prior year, the market value of the security was 50% of original cost, and this effect was properly reflected in a Valuation Adjustment account. However, at the end of the current year, the market value of the security had appreciated to twice the original cost. The security is still considered noncurrent at year-end. Explain how the information provided affects the classification, carrying value, and income reported for that company's investment securities.

Explanation / Answer

Since the security is classified as noncurrent portfolio of marketable equity securities it cannot be treated as trading securities. Therefore, when at the end of the current year, the market value of the security had appreciated to twice the original cost; the increase in fair value of the security should be credited to shareholder’s equity.

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