CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Evans Company owns 4.5 million shares of stock of Frazier Company classified as available-for-sale. During 2016, the fair value of those shares increased by $9 million. What effect did this increase have on Evans's 2016 financial statements?
A. Net assets increased.
B. Net income increased.
C. Shareholders' equity decreased.
Explanation: As "available for sale" securities they are reported at fair value, with unrealized gains and losses reported in shareholders' equity.

User Contributed Comments 5

User Comment
tll936 why B is wrong? Comprehensive income can report on income statement or statement of stockholder's equity?
Rubbish gains/losses 4 available for sale securities are reported as "other comprehensive income" whcih is after net income.
meeravenk It would be a part of comprehensive income (comprehensive income = net income + other comprehensive income) and not a part of net income. Therefore B is wrong.

A is right cos AFS securities are expressed in terms of fair value and that has now increased.
gill15 Thats why I got that wrong

Net assets = A - L = shareholders equity...

i hate accounting.
applelee Count me in gill15
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