At the beginning of the year, the permanent fund of Rapid City had an investment portfolio with a historical cost of $300,000 and a fair value of $330,000. There were no purchases or sales of securities during the year. At year end the portfolio had a fair value of $360,000. At the end of the year Rapid City will account for this increase in fair value in which of the following ways? a) Credit Investment income, $30,000. b) Credit Investment income, $60,000. c) Credit Fund Balance, $30,000. d) No entry is made to recognize increase in fair value.

Question

Business

Britney Mason

21 September, 06:57

At the beginning of the year, the permanent fund of Rapid City had an investment portfolio with a historical cost of $300,000 and a fair value of $330,000. There were no purchases or sales of securities during the year. At year end the portfolio had a fair value of $360,000. At the end of the year Rapid City will account for this increase in fair value in which of the following ways? a) Credit Investment income, $30,000. b) Credit Investment income, $60,000. c) Credit Fund Balance, $30,000. d) No entry is made to recognize increase in fair value.

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Answers (1)

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Trevor Barajas · Answer 1

Correct option is D

Explanation:

Provided Information,

There is a permanent fund with historical cost of $300,000.

Since the nature of fund is permanent and not a current fund which needs to be shown at current fair market value.

In case of long term assets and funds they are shown at historical cost, as there change in price is not reflected in balance sheet.

As the change might happen with increase or decrease, until the change is permanent the fund is shown at historical cost.

Therefore in the given case the increase in fair value from $300,000 to $360,000, will not be reflected in balance sheet.

Correct option is d)

No entry will be done to recognize any increase or decrease in fair value of such funds.