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cpaplus
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Joined: 08 Nov 2009
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Posted: 08 Nov 2009 at 20:40 \| IP Logged

Investor company purchase bonds in New Inc. at 97 plus accrued interest on June 1, 1999. The par value is $150,000 and the face rate is 4%. Interest is paid annually on July 31 and the maturity date is Jan 31,2011. Investor company treats this bond as held for trading. Investor companys year end is sept 30. The fair value of the bond on sept 30, 1999 is $148,375. How do we make adjustments to the carrying value to adjust it to the FV of 148,375 at year end??

arushi_13
Major Contributor

Joined: 09 Feb 2008
Online Status: Offline
Posts: 1235

Posted: 10 Nov 2009 at 01:00 \| IP Logged

In my opinion the cost of the bond is calculated as follows:
$145,500+ 150,000*4%*10/12( accrued interest) = 150,500

For trading securities unrealized holding gains and losses are included in earnings in the period changes occur.

Income Statement
---------------------
Other Income( Expense)

Net unrealized holding loss on investments ($2,125)-->$148,375 - $150,500 (cost)

OCI
--------
None

Balance Sheet
---------
Trading securities $148,375

Please do correct me if I am wrong.

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