Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on Jan
ID: 2420847 • Letter: L
Question
Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively.
At April 1, 2015, Landis Company sold the Ritter bonds for $2,060,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2015 was $2,064,960. Assuming Landis Company has a portfolio of Available-for-Sale Debt Securities, what should Landis Company report as a gain or loss on the bonds?
A. $0
B. ($58,740)
C.($43,740)
D. ($4,960)
Explanation / Answer
Sales price of bond = $2060000
Carrying value of bonds = 2064960
Loss on sale of bond =20 60000 - 2064960
= ($4960)
Thus answer will be D($4960)
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