Question

Boulter, Inc. began business on January 1, 2013. At the end of December 2013, Boulter had the following investments in equity securities: All declines in value are deemed to be temporary in nature. How should the corresponding losses be reflected in the financial statements at December 31, 2013?

Answer 1

If the declines in value of equity securities are temporary, they should be reflected as unrealized losses in the financial statements under other comprehensive income. If the declines are significant and considered other than temporary, they should be recognized as impairment losses in the income statement.

Step-by-step explanation:

According to FASB's guidance, if the declines in value of the equity securities are deemed to be temporary, they should be reflected as unrealized losses in the financial statements at December 31, 2013. These unrealized losses should be recognized in the income statement as a separate component of comprehensive income, specifically under the heading 'Other Comprehensive Income'. They should not be recognized in the balance sheet as a reduction in the carrying value of the equity securities.

Additionally, if the declines in value are significant and considered to be other than temporary, then the losses should be recognized in the income statement as impairment losses, rather than as unrealized losses in other comprehensive income.

It is important to note that the specific accounting treatment may vary depending on the relevant accounting standards applicable in the jurisdiction in which Boulter operates.