Asked by Matthew Knudsen on May 12, 2024
Verified
An unrealized loss account on available-for-sale securities is
A) reported under Other Expenses and Losses in the income statement.
B) closed-out at the end of the accounting period.
C) reported as a separate component of stockholders' equity.
D) deducted from the cost of the investment.
Unrealized Loss
A loss that occurs on paper when the current market value of an investment is lower than its cost but has not been actualized through a sale.
Available-For-Sale Securities
Financial assets held by a firm that can be sold in the financial markets, not classified as held-to-maturity or trading securities.
Stockholders' Equity
The residual interest in the assets of a corporation after deducting its liabilities.
- Distinguish between realized and unrealized gains and losses and their treatment for different types of investments.
Verified Answer
RC
Robert CabreraMay 12, 2024
Final Answer :
C
Explanation :
An unrealized loss account on available-for-sale securities is reported as a separate component of stockholders' equity. This is because available-for-sale securities are not intended to be held for a short-term gain and any change in fair value is recorded directly to the equity section of the balance sheet. It is not reported as an expense on the income statement, closed-out at the end of the accounting period, or deducted from the cost of the investment.
Learning Objectives
- Distinguish between realized and unrealized gains and losses and their treatment for different types of investments.