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Under the fair value through net income method (10% ownership), shares costing $50,000 have a fair value of $12.00 per share at period end (5,000 shares). What fair value adjustment is recorded?
AUnrealised gain of $2,000
BUnrealised gain of $10,000
CUnrealised loss of $10,000
DNo adjustment is required
Answer & Solution
Correct answer: B. Unrealised gain of $10,000
1. Cost per share $= \$50{,}000 \div 5{,}000 = \$10.00$.
2. Fair value uplift per share $= \$12.00 - \$10.00 = \$2.00$.
3. Adjustment $= 5{,}000 \times \$2.00 = \$10{,}000$.
4. Debit Investment in ABC Stock $10,000; credit Unrealised Holding Gain/Loss. Option A applies only the $2 per-share figure without multiplying by shares.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.9.2 "Adjust to Fair Value", p.186_
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