6 S&L Financial buys and sells securities that it typically classifies as availa

Question

6 S&L Financial buys and sells securities that it typically classifies as available-for-sale. On December 27, 2018, S&L purchased Coca Cola bonds at par for $875,000 and sold the bonds on January 3, 2019, for $880,000. At December 31, the bonds had a fair value of $873,000. When it purchased the Coca-Cola bonds, S&L Financial decided to elect the fair value option for this investment. 7.69 points What pretax amounts did S&L include in its 2018 and 2019 net income as a result of this investment (ignoring interest)? Pretax Amount eBook 2018 oss References

Explanation / Answer

Pretax Amount

2018

Loss

$2000

2019

Gain

$7000

Explanation;

Loss in 2018 will be calculated as follow;

Purchased price – Fair value

$875000 – $873000 = $2000 Loss

Gain in 2019 will be calculated as follow;

Sale price – Fair value

$880000 – $873000 = $7000 Gain

Pretax Amount

2018

Loss

$2000

2019

Gain

$7000

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