2) On December 1, Year 1, Axel Financial purchased $50,000 of bonds issued by La
ID: 2576386 • Letter: 2
Question
2) On December 1, Year 1, Axel Financial purchased $50,000 of bonds issued by Lamb Company at face value. The bonds mature in ten years. Axel’s intent was to sell the bonds soon to earn a profit on any short-term price fluctuations. The fair value of those bonds decreased by $5,000 to $45,000 on December 31, Year 1. Which of the following statements are correct with regards to this investment? (Select all that apply.)
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The bonds should be reported among current assets in the balance sheet at December 31, Year 1.
The bonds should be reported among current assets in the balance sheet at December 31, Year 1.
At December 31, Year 1, the $5,000 decrease in fair value should be ignored.
At December 31, Year 1, the $5,000 decrease in fair value should be ignored.
The bonds should be reported at their fair value of $45,000 in the balance sheet at December 31, Year 1.
The bonds should be reported at their fair value of $45,000 in the balance sheet at December 31, Year 1.
An unrealized holding gain in the amount of $5,000 should be included in net income in the income statement prepared for Year 1.
4) Assume that an investment in bonds classified as trading securities is sold. Which of the following would be included in the two entries to record the sale? (Select all that apply.)
Check All That Apply
An update of the Fair value adjustment account
An update of the Fair value adjustment account
Removal of the related investment account balances
Removal of the related investment account balances
The total amount of gain or loss that has occurred since the securities were purchased
The total amount of gain or loss that has occurred since the securities were purchased
The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period
The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period
5) On December 1, Year 1, Childe Company purchased $100,000 of bonds issued by Paperman Company at face value. The bonds mature in ten years. Childe’s intent was to keep the bonds available to sell when cash needs arise in future years. The fair value of those bonds increased to $102,000 on December 31, Year 1. Which of the following statements are correct with regards to this investment? (Select all that apply.)
Check All That Apply
The bonds should be reported among assets in the balance sheet at December 31, Year 1.
The bonds should be reported among assets in the balance sheet at December 31, Year 1.
The bonds should be reported at their fair value of $102,000 in the balance sheet.
The bonds should be reported at their fair value of $102,000 in the balance sheet.
An unrealized holding gain of $2,000 should be included in net income for Year 1.
An unrealized holding gain of $2,000 should be included in net income for Year 1.
An unrealized gain of $2,000 should be included in other comprehensive income for Year 1.
11) Question: Assume that an equity investment that lacks significant influence is sold. Which of the following would be included in the two entries to record the sale? (Select all that apply.)
Check All That Apply
An update of the Fair value adjustment account
An update of the Fair value adjustment account
Removal of the related investment account balances
Removal of the related investment account balances
The total amount of gain or loss that has occurred since the securities were purchased
The total amount of gain or loss that has occurred since the securities were purchased
The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period
The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period
Explanation / Answer
Answer to Part 2
Answer to Part 4
d) The amount of the unrealized holding gain or loss that has occurred since the end of the prior accounting period
Answer to Part 5
a) The bonds should be reported among assets in the balance sheet at December 31, Year 1 as it is a asset of the company. It is to be noted that it is to be recorded as Non Current Assets.
b) The bonds should be reported at their fair value of $102,000 in the balance sheet as such securities are to be recorded at their FMV on the date of preparations of financial statements
d) An unrealized gain of $2,000 should be included in other comprehensive income for Year 1 under equity section as such securities are available for sale securities.
Answer to Part 11
a) An update of the Fair value adjustment account
b) Removal of the related investment account balances
c) The total amount of gain or loss that has occurred since the securities were purchased
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