Brandy Corporation's trading portfolio at the end of the year is as follows: $\begin{array}{lrr}\underline{\text{ Security}}& \underline{\text{ Cost}}& \underline{\text{ Fair Value}}\\ \text{ Common Stock C }& \$10,000& \$12,000\\ \text{ Common Stock D }& \underline{9,000}& \underline{5,000}\\ & \underline{\$19,000}& \underline{\$17,000}\end{array}$ At the end of the year Brandy Corporation should

A) set up a Fair Value Adjustment account for Stock D.
B) set up a Fair Value Adjustment account for the portfolio.
C) recognize an Unrealized Gain or Loss-Income for $4000.
D) report a loss on the income statement for $4000 under "Other expenses and losses."

Since the portfolio contains securities classified as trading securities, any changes in fair value must be recognized in the income statement. Therefore, Brandy Corporation should set up a Fair Value Adjustment account for the portfolio as a whole to reflect any changes in fair value at the end of the year. This adjustment will ensure that the portfolio's carrying amount on the balance sheet will reflect its fair value. There is no need to set up a Fair Value Adjustment account for Stock D specifically. Additionally, there is no need to recognize any unrealized gain or loss in the income statement until the securities are sold. Reporting a loss on the income statement under "Other expenses and losses" would be incorrect since losses on trading securities are reported separately as a component of income.