The primary difference in accounting for available-for-sale investments in stock and accounting for trading investments in stock is which of the following?
A)Measuring the fair value of the long-term and short-term investment portfolios on the balance sheet.
B)Determination of the acquisition cost.
C)Reporting of the unrealized holding gain or loss on investments within the financial statements.
D)Determination of the unrealized holding gain or loss.

Question

Quizplus · Accepted Answer

The primary difference between accounting for available-for-sale investments and trading investments is the reporting of the unrealized holding gain or loss on investments in the financial statements. Available-for-sale investments are reported at fair value with gains and losses reported as unrealized holding gains or losses in other comprehensive income until they are sold. Trading investments are also reported at fair value, but gains and losses are recognized immediately in net income. The determination of acquisition cost and unrealized holding gain or loss are aspects that are common to both types of investments. Measuring the fair value of the long-term and short-term investment portfolios on the balance sheet is commonly done for both types of investments as well.

The Primary Difference in Accounting for Available-For-Sale Investments in Stock