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Wells Inc.reported these transactions relating to marketable trading investments intended to generate profits and to be sold in the near term:

-The entry, if any is required, to record the value of the investment on December 31 would include a debit to
A)Realized Loss for $450.
B)Unrealized Loss for $750.
C)No entry is required.
D)Unrealized Loss of $450.

Question

Use the following information to answer questions 
Wells Inc.reported these transactions relating to marketable trading investments intended to generate profits and to be sold in the near term:
 
-The entry, if any is required, to record the value of the investment on December 31 would include a debit to
A)Realized Loss for $450. 
B)Unrealized Loss for $750. 
C)No entry is required. 
D)Unrealized Loss of $450.

Quizplus · Accepted Answer

The prompt states that the investments are intended to be sold in the near term, which means they are classified as trading securities. These investments are reported at fair value on the balance sheet, with changes in fair value recognized in net income as unrealized gains or losses. On December 31, if the fair value of the investment has declined, an unrealized loss would be recognized. Therefore, the entry required would include a debit to Unrealized Loss (for the amount of the decline in fair value). The options (A) and (B) both reference Realized Loss, which would only be recognized if the investment had actually been sold. Option (C) is incorrect because an entry is required to recognize the change in fair value.

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