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Sun Corp. had investments in marketable equity securities costing $650,000. On June 30, Year 2, Sun decided to hold the investments indefinitely and accordingly reclassified them from trading to available-for-sale on that date. The investments' market value was $575,000 at December 31, Year 1, $530,000 at June 30, Year 2, and $490,000 at December 31, Year 2.
What amount should Sun report as net unrealized loss on available-for-sale marketable equity securities in its Year 2 statement of stockholders' equity?
a. $85,000
b. $45,000
c. $40,000
d. $160,000
Explanation
Choice "c" is correct, $40,000 "net unrealized loss on available-for-sale marketable equity securities" in the Year 2 statement of stockholders' equity.
Rule: Available-for-sale marketable equity securities are recorded at the fair value, and any temporary difference is reported as "net unrealized loss on available-for-sale marketable equity securities" in other comprehensive income on the statement of stockholders' equity.
Carrying amount 6/30/Year 2 $ 530,000
FMV December 31, Year 2 (490,000)
Net unrealized loss at 12/31/Year 2 $ 40,000
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