In Recognizing a Decline in the Fair Value of Short-Term

question 166

Multiple Choice

In recognizing a decline in the fair value of short-term share investments, an unrealized loss account is debited because

• A) management intends to realize this loss in the near future.
• B) the securities have not been sold.
• C) the share market is volatile.
• D) management cannot determine the exact amount of the loss in value.

---

Definitions:

Tax-Exempt Municipal

Refers to income earned from municipal bonds that is exempt from federal income tax and, in many cases, state and local taxes.

Pretax Financial Income

The amount of income a company has earned before any taxes have been deducted, often used for internal reporting.

Taxable Income

The amount of an individual's or entity's income used to determine how much tax is owed, calculated by deducting allowable deductions from gross income.

Permanent Difference

A discrepancy between taxable income and accounting income that will not reverse over time, affecting the tax and financial reporting separately.