Libby Company purchased debt securities for $100,000 and classified them as available-for-sale securities on September 15,2019.At December 31,2019,the current fair value of the debt securities was $105,000.How should the investment be reported in the 2019 financial statements?

A) The debt investment in available-for-sale securities would be reported on the balance sheet at its $100,000 cost.
B) The $5,000 unrealized gain is reported within the income statement.
C) The $5,000 realized gain is reported within the income statement.
D) The debt investment in available-for-sale securities would be reported in the balance sheet at its $105,000 fair value and an unrealized holding gain on available-for-sale securities would be reported in the stockholders' equity section of the balance sheet.

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Maddie Collins · Accepted Answer

Final Answer : D, Explanation :  According to accounting standards, available-for-sale securities should be reported at fair value, and any unrealized holding gains or losses should be reported as a separate component of stockholders' equity until realized. Therefore, the debt investment should be reported at its current fair value of $105,000 on the balance sheet, and an unrealized holding gain of $5,000 (=$105,000 fair value - $100,000 cost) should be reported in the stockholders' equity section of the balance sheet. No entry should be made in the income statement because the gain is unrealized.

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