Question

During the year, a company’s investment in debt securities increases in fair value, resulting in an unrealized gain on the investment. The investment is not sold by the end of the year. The company is considering whether to report the unrealized gain as a component of net income or as a component of other comprehensive income. Under which reporting requirement would the company have a higher ending balance of total shareholders’ equity?

A. As a component of net income

B. As a component of other comprehensive income

C. Total shareholders' equity would be the same with either reporting requirement

D. None of the other answers are correct

Answer 1

Solution:

Under both reporting requirememnt either as a part of net income or other comprehensive income, unrealized gain will be treated as part of stockholder's equity. Therefore "Total shareholders' equity would be the same with either reporting requirement"

Hence option C is correct.