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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On July 1, 2019, Aldrich Company purchased as an available-for-sale security $200,000 face value, 9% U.S. Treasury notes for $194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for $199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security?

  1. a. $2,500
  2. b. $3,500
  3. c. $5,000
  4. d. $6,000

To determine

Calculate the amount of gain on the sale of the available-for-sale security by Company A.

Explanation

Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

Calculate the amount of gain on the sale of the available-for-sale security by Company A.

Gain on sale of the available-for-sale security}=Sale price[Purchase price+Number of monthsMonths in a year×(Fair valuePurchase value of the bond)]=$199,000<

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