Question

Smith buys and sells equity securities. On December 15, 2021, Smith purchased $542,000 of Jones shares and elected the fair value option to account for the Jones investment. As of December 31, 2021, the Jones shares had a fair value of $588,000. In the 2021 financial statements, Smith will report (ignore taxes):______.

A. Investment income of $25,000 in its income statement.
B. Other comprehensive income of $25,000.
C. Accumulated other comprehensive income of $525,000.
D. An investment in Jones of $500,000.

Answer 1

$46,000

Step-by-step explanation:

We can find out the the revaluation gain that need to be reported at the year end by just deducting the the cost of the investment by its current fair value .

DATA

Fair value = 588,000

Cost = 542,000

Revaluation gain = Current fair value - Cost

Revaluation gain = 588,000 - 542,000

Revaluation gain = $46,000

The revaluation gain of $46,000 will be reported in other compreensive income of smith's financial statements.