Questions: lem #13 of 16 All of the following statements are true regarding available-for-sale securities except a. they are recorded at fair value. b. changes in their fair values are included as part of stockholders' equity. c. a valuation allowance account is not used with available-for-sale securities. d. changes in their fair values are not recognized on the income statement.

lem #13 of 16 All of the following statements are true regarding available-for-sale securities except a. they are recorded at fair value. b. changes in their fair values are included as part of stockholders' equity. c. a valuation allowance account is not used with available-for-sale securities. d. changes in their fair values are not recognized on the income statement.
Transcript text: lem #13 of 16 All of the following statements are true regarding available-for-sale securities except a. they are recorded at fair value. b. changes in their fair values are included as part of stockholders' equity. c. a valuation allowance account is not used with available-for-sale securities. d. changes in their fair values are not recognized on the income statement.
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Solution

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The answer is c: a valuation allowance account is not used with available-for-sale securities.

Explanation for each option:

a. They are recorded at fair value.

  • This statement is true. Available-for-sale securities are indeed recorded at fair value on the balance sheet.

b. Changes in their fair values are included as part of stockholders' equity.

  • This statement is true. Changes in the fair value of available-for-sale securities are reported in other comprehensive income, which is a component of stockholders' equity.

c. A valuation allowance account is not used with available-for-sale securities.

  • This statement is false. A valuation allowance account is used to adjust the carrying value of available-for-sale securities to their fair value. Therefore, this is the correct answer to the "except" question.

d. Changes in their fair values are not recognized on the income statement.

  • This statement is true. Changes in the fair value of available-for-sale securities are not recognized in the income statement; instead, they are reported in other comprehensive income.

In summary, option c is the exception because a valuation allowance account is indeed used with available-for-sale securities.

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