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 $54,000 of Smoke Bay 4%, 10-year bonds at their face amount plus accrued interest of $360. The bonds pay interest semiannually on February 1 and August 1. May 16. Purchased $132,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $330. The bonds pay interest semiannually on May 1 and November 1. Aug. 1. Received semiannual interest on the Smoke Bay bonds.
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 $54,000 of Smoke Bay 4%, 10-year bonds at their face amount plus accrued interest of $360. The bonds pay interest semiannually on February 1 and August 1. | |
| May 16. | Purchased $132,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $330. The bonds pay interest semiannually on May 1 and November 1. | |
| Aug. 1. | Received semiannual interest on the Smoke Bay bonds. | |
| Sept. 1. | Sold $21,600 of Smoke Bay bonds at 103 plus accrued interest of $72. | |
| Nov. 1. | Received semiannual interest on the Geotherma Co. bonds. | |
| Dec. 31 | Accrued $432 interest on Smoke Bay bonds. | |
| Dec. 31 | Accrued $660 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.
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2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?
If the bonds are classified as available-for-sale securities, then the portfolio of bonds would need to be adjusted to ______ (fair value OR historical cost). This would be accomplished by using a valuation allowance account and ______ ( a realized gain [loss] OR an unrealized gain [loss]) account.
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