Question

Pashmina Tea House purchased debt securities during 2021 and classified them as securities available-for-sale:

Security	Cost				Fair Value, 12/31/2021
A		$	40,000			$	49,000
B			70,000				66,000
C			28,000				39,000

All declines are considered to be temporary. How much gain will be reported by Pashmina Tea House in the December 31, 2021, income statement relative to the portfolio?

A) $0.              B) $16,000                  C) $20,000

Answer 1

Segment	Cost	fair value	Unrealized gain/loss
A	40,000	49,000	9,000
B	70,000	66,000	-4,000
C	28,000	39,000	11,000
Total	$138,000	$153,000	$16,000

gain to be reported in Dec 31, 2021, income statement relative to portfolio = $16,000

Correct option is (B)

In case of available for sale securities, unrealized gain/loss is recorded on the income statement of the current year.

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