Sloan Company has owned a debt securities investment during 2021 that has increased in fair value. After all closing entries for 2021 are completed, the effect of the increase in fair value on total shareholders' equity would be:

Question

Giles

Business

8 September, 10:49

Sloan Company has owned a debt securities investment during 2021 that has increased in fair value. After all closing entries for 2021 are completed, the effect of the increase in fair value on total shareholders' equity would be:

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Scout · Answer 1

This securities investment classifies as unrealized gains, as it has to be reported in the balance sheet under shareholder equity in the Accumulated Other Comprehensive Income account.

Explanation:

Unrealized gains (or losses) only exit on paper, since the company cannot recognize the gains until it sells the securities. It is an estimate of the profits that the company can make when it sells the securities, but until it does, they cannot be included in the income statement.