Question

Lindor and Sons purchased an available-for-sale investment for $800,000. The fair value of that investment is $750,000 at the end of the current fiscal year. The company’s total net income for the year is approximately $2,500,000.
Based on this information, which of the following statements is accurate?

a. The company will recognize an unrealized holding loss.
b. The company will need to report their investment at an amortized cost.
c. The company will be unable to include the unrealized gain or loss in their comprehensive income.
d. The company will not recognize their dividends as revenue.

Answer 1

Answer:

a. The company will recognize an unrealized holding loss.

Explanation:

An unrealised loss is defined as a decline in an asset theta is held by a business. The asset can be held until it's value appreciates to cancel out the unrealised loss. If such an asset is sold, it will now be a realised loss.

The unrealized loss of (800,000-750,000= $50,000) will be recorded in the accumulated other comprehensive income account under the equity section of the balance sheet.

Unrealised loss is also called paper loss because the loss is only recorded on paper and is not yet realised.