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

question 69

Multiple Choice

In recognizing a decline in the fair value of short-term stock 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 stock market is volatile.
• D) management cannot determine the exact amount of the loss in value.

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Definitions:

Reversal Effect

Describes a phenomenon in finance and economics where an observed trend or pattern in market prices reverses direction over a certain period.

Buy Bonds

A strategy or action where investors purchase bond securities, typically as a means of diversifying a portfolio or securing fixed income returns.

Buy Stocks

The action of purchasing shares of a company with the expectation that their value will increase over time.

Mutual Fund Investors

Individuals or institutions that invest in a mutual fund, pooling money together to be managed by professional fund managers.