Hco income statement will show an unrealized gain of 20

Reference no: EM13570298

HCo had held-to-maturity securities worth $100 at the beginning of the year. At the end of the year, the securities are worth $120. Which one of the following best describes the pre-tax impact of the increase in value of held-to-maturity securities on HCo's income statement and balance sheet? (Assume that there were no interest or dividend revenues during the period.)

a.HCo's income statement will show an unrealized gain of $20, while HCo's balance sheet will show the held-to-maturity securities to be up from $100 to $120, with a corresponding increase in retained earnings.

b.HCo's income statement will be unaffected, while HCo's balance sheet will show the held-to-maturity securities to be up from $100 to $120, with a corresponding increase in unrealized gain, which is shown as accumulated other comprehensive income, not retained earnings.

c.HCo's income statement and balance sheet will be unaffected.

d.HCo income statement will show an unrealized gain of $20, while HCo's balance sheet will show the held-to-maturity securities to be up from $100 to $120, with a corresponding increase in unrealized gain, which is shown as accumulated other comprehensive income, not retained earnings.

e.HCo's income statement will show a gain only if HCo is sure that the securities are unlikely to decline in value below $120 in the future. If a gain is booked on the income statement, the balance sheet will show an increase in held-to-maturity securities and a corresponding increase in retained earnings.

Reference no: EM13570298

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