Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of debt securities are as follows:- **December 31, 20X1**: Cost is $305,000, and Fair Value is $300,000.- **December 31, 20X2**: Cost is $384,000, and Fair Value is $390,000.The year-end adjusting entry required to record the unrealized gain or loss at December 31, 20X2 involves recognizing the difference between the fair value and the cost of these securities. ### Explanation:- In 20X1, there is an unrealized loss of $5,000 because the fair value ($300,000) is less than the cost ($305,000).- In 20X2, there is an unrealized gain of $6,000 because the fair value ($390,000) is greater than the cost ($384,000). The adjustment ensures financial statements reflect the current market value of investments, capturing unrealized gains or losses.

Companies must record revenue and costs when they are generated or incurred, rather than when cash…

Answered: Carpark Services began operati…

Carpark Services began operati available-for-sale debt securitie securities follows. The year-end December 31, 20X2 is: Available-for-Sale Securities Co

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities. The year-end cost and fair values for its portfolio of debt securities are as follows:

- **December 31, 20X1**: Cost is $305,000, and Fair Value is $300,000.
- **December 31, 20X2**: Cost is $384,000, and Fair Value is $390,000.

The year-end adjusting entry required to record the unrealized gain or loss at December 31, 20X2 involves recognizing the difference between the fair value and the cost of these securities.

### Explanation:
- In 20X1, there is an unrealized loss of $5,000 because the fair value ($300,000) is less than the cost ($305,000).
- In 20X2, there is an unrealized gain of $6,000 because the fair value ($390,000) is greater than the cost ($384,000).

The adjustment ensures financial statements reflect the current market value of investments, capturing unrealized gains or losses.

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