Question

Yankton Company began the year without an investment portfolio. During the year, it purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. Yankton Company's financial statements for the current year should show:_______.
a. a loss of $2,000 on the income statement and available-for-sale investments of $13,000 on the balance sheet.
b. no loss on the income statement, available-for-sale investments netting to of $11,000, and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet.
c. no loss on the income statement and available-for-sale investments of $13,000 on the balance sheet.

Answer 1

Answer:

The answer is B.

Explanation:

Available-for-sale is an equity or debt instrument that is not held to maturity. They are held for the purposes of trading or selling before its maturity. Businesses look for active buyers. They are being reported at their fair value.

If the fair value of this security (available-for-sale instrument) increases, the carrying amount is debited and changes in fair value in shareholders' equity is credited. If the fair value of the investments decreases, the carrying amount is debited and changes in fair value in shareholders' equity is debited.

Therefore, the loss of $2,000 is an adjustment in stockholders' equity on the balance sheet.