Fowler Inc. purchased $95,000 of bonds on January 1, 2016. The bonds pay interes

Question

Fowler Inc. purchased $95,000 of bonds on January 1, 2016. The bonds pay interest semiannually and mature in 30 years, at which time the $95,000 principal will be paid. The bonds do not pay any amounts other than interest and principal. Fowler’s intention is to sell the bonds within the next couple of years if the price is right. During 2016, the fair value of the bonds increased to $120,000. Fowler reports investments under IFRS No. 9. Fowler intends to hold the bonds until maturity.

How much unrealized gain or loss would Fowler include in 2016 net income with respect to the bonds?

unrealized gain (loss) in net income?____

Explanation / Answer

Unrealized gain = Current market price - Cost of purchase

= $120,000 -$95,000 = $25,000

Therefore, the unrealized gain is $25,000.

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