Question #34
Reading: Reading 8 Intercorporate Investments
PDF File: Reading 8 Intercorporate Investments.pdf
Page: 14
Status: Correct
Correct Answer: A
Question
Fiduciary Investors held two portfolios of marketable securities: $50 million in Portfolio A was accounted for as Fair value through profit or loss. $50 million in Portfolio B was accounted for as amortized cost securities. Assume that Fiduciary reclassified securities ($10 million carrying value, $8 million market value) from Portfolio B into Portfolio
Answer Choices:
A. charge $2 million to its income statement
B. do nothing to its income statement or equity section of its balance sheet
C. charge $2 million to the equity section of its balance sheet
Explanation
Reclassification of debt securities into FVPL is allowed if the business model has changed.
Unrealized gain or loss on reclassification is recognized in the income statement.