Question

On December 29, 2019, James Company sold a debt security that had been purchased on January 4, 2018. James owned no other debt securities. An unrealized holding loss was reported in the 2018 income statement. A realized gain was reported in the 2019 income statement. Was the debt security classified as available-for-sale and did its 2018 market price decline exceed its 2019 market price recovery?

2018 Market Price
Decline Exceeded 2019
Available-for-Sale Market Price Recovery
a. Yes Yes
b. Yes No
c. No Yes
d. No No

Answer 1

D) No No

Step-by-step explanation:

During 018 the security was not classified as available for sale since it was included in the balance sheet as unrealized holding loss and it didn't affect the balance sheet.

The market price recovery during 2019 exceeded the market price decline of 2018, since during 2018 the company reported unrealized holding loss while after it sold the security it reported a realized gain. That means that the gain was larger than the loss.