### CFA Practice Question

There are 534 practice questions for this study session.

### CFA Practice Question

Culpepper Corporation owns available-for-sale securities with a cost of $90,000. Immediately before the year-end adjustment, the market adjustment account has a$5,000 debit balance. The securities have a current value of $85,000 at the end of 2011. Which one of the following is the correct adjustment to the market adjustment account? A.$5,000 credit
B. $10,000 credit C.$5,000 debit

Since market value of $85,000 is less than the cost of$90,000, a $5,000 credit balance is the correct ending balance of the market adjustment account. A$10,000 credit is required to bring the market adjustment account from a $5,000 debit to a$5,000 credit.

User Comment
kalps Surely the double entry for market adjustment would be to credit AFS securities US$5000 ( to reduce its value) and debit the market adjustment account US$5000
Gina Beginning:
---------- ----------------
90K | | 5K

Step 1:
---------- ----------------
90K | | 5K
| 5K

Final:
securities
-----------
85K |
Gina ignore whatever I was trying to do before.
CARRYOVER
securities debit 90K

bobert The market adjustment account is a contra asset account. That should also help you when trying to figure out the debit ans credit situation.
SaeedAlam Contra asset. That clears evthn up. Thanks Bobert
poomie83 I think the entry would be
DEbit unrealised loses 10k
Ifi2703 A contra asset ccount can never have a debit balance - it can only have a credit or zero balance. Therefore as the account previously had a 'debit' of $5000, we credit back the$5000 'debit' and also credit the account with an additional $5000 which we have lost in terms of the fair value of the securities. Thus in total we would credit the account with$10,000.
Veer_02 Could we say that maybe during the year, the securities went up by $5000, hence the debit balance at first. Inturn, we have to get the closing balance to be$85000 so we just credit \$10000.