Question

ABC Co?s trading portfolio at the end of the year is as follows: XY Stock ? Cost of $10,000, Fair value of $12,000 JK Stock ? Cost of $9,000, Fair value of $5,000 At the end of the year, ABC Co. should set up a Fair Value Adjustment account for JK Stock. set up a Fair Value Adjustment account for the portfolio. recognize an Unrealized Gain or Loss?Income for $4,000. report a loss on the income statement for $4,000 under ?Other expenses and losses.?

Answer 1

Solution:

From the given Option (B) is correct that is -

(B) - Set up Fair value Adjustment account for the Portfolio .

As the cost of Trading portfolio = $19,000 and

Fair value = $17,000 .

so,there is unrealized loss from trading securities income of $2,000 .

so,we have to create a fair value adjustment account to account for this.

Journal Entry will be -

Unrealized loss from trading securities A/c----dr $2,000

To Fair value adjustment account A/c $2,000 .

Therefore at the end of the year , ABC Co should set up a Fair Value Adjustment account for the portfolio .