Question

In January 2023 , Haddock Ltd. had purchased an investment for $150,000. By December 31, 2023, the fair market value of that investment had increased by $20,000. Assuming this gain was included in the company's 2023 net income, which accounting method did Haddock use to account for this investment?

a. cost
b. equity
c. fair value through other comprehensive income (FV-OCI)
d. fair value through net income (FV-NI)

Answer 1

Haddock Ltd. used the fair value through net income (FV-NI) accounting method to include the $20,000 gain from the investment in the company's 2023 net income.

Step-by-step explanation:

If Haddock Ltd.'s investment increased in fair market value by $20,000 and this gain was included in the company's 2023 net income, the accounting method used by Haddock to account for this investment would be fair value through net income (FV-NI). This accounting method recognizes changes in fair value in the net income as they occur, rather than in other comprehensive income or not recognizing them at all until the investment is sold, which would be the case with the cost method or equity method.