Wright Company has available-for-sale debt securities that it had originally acquired at part for $110,000. On December 31, 2017, the securities had a market value of $108,000. The market value rose to $123,000 by December 31, 2018. What accounting action is required on December 31, 2018

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01-07-2021
Business

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Wright Company has available-for-sale debt securities that it had originally acquired at part for $110,000. On December 31, 2017, the securities had a market value of $108,000. The market value rose to $123,000 by December 31, 2018. What accounting action is required on December 31, 2018

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Parrain Parrain · Answer 1 · 2021-07-03T03:55:52+02:00

Answer: A) Allowance for Change in Fair Value of Investments should be credited for $15,000

Explanation:

Available-for-sale securities are bought by a company with the intention of selling it before it matures.

It has to be recorded at fair value so when there is a change in value, this is reflected in the books. If there is an increase, the increase or gain goes to the Allowance for Change in Fair Value of Investments account under Other Comprehensive income.

The change in value here is:

= Current market value - Original market value

= 123,000 - 108,000

= $15,000