Yankton Company began the year without an investment portfolio. During the year, it purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. Yankton Company's financial statements for the current year should show

A) a loss of $2,000 on the income statement and net trading securities of $13,000 on the balance sheet
B) no loss on the income statement and net trading securities of $13,000 on the balance sheet
C) no loss on the income statement, net trading securities of $11,000, and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet
D) a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet

Question

Aqila Camalya · Accepted Answer

Final Answer : D, Explanation :  The company purchased the investments as trading securities, indicating that they intend to sell the securities in the near future for a profit. Thus, the investments should be reported on the balance sheet as temporary investments, which have a current fair value of $11,000. Because the fair value of the securities is less than the cost, the company will need to recognize a loss on the income statement. The loss is calculated as the difference between the cost and the fair value, which is $13,000 - $11,000 = $2,000. Therefore, the financial statements should show a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet. Choice D is thus the correct answer.

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