FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Debt Investment Transactions, Available-for-Sale Valuation
Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Rekya Mart Inc., which has a fiscal year ending on December 31:
| Year 1 | |
| Apr. 1. | Purchased $60,000 of Smoke Bay 7%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on February 1 and August 1. |
| May 16. | Purchased $96,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $240. The bonds pay interest semiannually on May 1 and November 1. |
| Aug. 1. | Received semiannual interest on the Smoke Bay bonds. |
| Sept. 1. | Sold $24,000 of Smoke Bay bonds at 104 plus accrued interest of $140. |
| Nov. 1. | Received semiannual interest on the Geotherma Co. bonds. |
| Dec. 31 | Accrued $840 interest on Smoke Bay bonds. |
| Dec. 31 | Accrued $480 interest on Geotherma Co. bonds. |
| Year 2 | |
| Feb. 1. | Received semiannual interest on the Smoke Bay bonds. |
| May 1. | Received semiannual interest on the Geotherma Co. bonds. |
Required:
1.
2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?
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