If a Company Elects the Fair Value Option to Account

question 178

Multiple Choice

If a company elects the fair value option to account for Trading Equity securities,what will be recorded differently for these trading securities?

• A)Unrealized Gains and Losses will now be reported as part of Net Income instead of Other Comprehensive Income.
• B)Dividends received from the investee will now be credited to Dividend Revenue instead of as a reduction to the investment account.
• C)A proportionate share of net income will no longer need to be recorded for these trading securities.
• D)There is no difference in accounting for Trading securities as these are already accounted for using the fair value method.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Depreciation Tax Shield

The reduction in taxable income for businesses that results from claiming depreciation expenses, thereby lowering tax liabilities.

Break-Even Lease Payment

The lease payment amount at which the cost of leasing equals the cost of owning, resulting in no net profit or loss.

Straight-Line Method

A technique in accounting for evenly spreading the cost of an asset over its useful life.