CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements is (are) true with respect to the cost or market method of carrying an investment?

I. Cost method is primarily used for securities that are not publicly traded.
II. A company cannot carry an investment using the cost method if it exerts a significant influence on the company that it has an investment in.
III. Other than realized gains and losses, the market method only allows an unrealized gain to be recorded in the income statement.
IV. Under the lower of cost or market method, under no circumstances may unrealized gains be recorded in the income statement.
A. I and II
B. II and IV
C. I and III
Explanation: III is incorrect because the market method allows both unrealized gains and losses to be realized in the income statement.

IV is wrong because under the lower of cost or market method, an unrealized gain may be recorded in the income statement if that gain represents a recovery of a previously written down amount.

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