Consider the following facts: - Company A purchased bonds from Company B on Janu

Question

Consider the following facts: - Company A purchased bonds from Company B on January 1, 2015. - The bonds were purchased for $2,083,160. - The bonds pay coupon interest of 8%, and the interest is payable on July 1 and January 1. - The bonds have a maturity of 5 years. - The bonds have a face amount of $2,000,000. - The effective annual yield on the bonds is 7% - Company A uses the effective-interest-method to amortize bond premium or discount. - On July 1, 2015 and December 31, 2015, Company A amortized premiums of $7,080 and $7,320. - Company A holds the bonds in its Available-for-Sale Debt Securities account. On December 31, 2015, the fair value of the Company B bonds was $2,120,000. Because of this, Company A should report Other Comprehensive Income of $ _________ in its stockholders' equity section of its balance sheet.

Explanation / Answer

Fair Value of the Bonds = 2,120,000

Less: Purchase Price = 2,083,160

Gain = 36,840

This gain is reported as Other Comprehensive Income in Stockholders' Equity section.

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