Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on Janu

Question

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively. At December 31, 2014, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income and as a separate component of stockholders equity

Explanation / Answer

Fair value of Carlin Inc. bonds on December 31, 2014 = $954,000

Selling price of bond = $937,422

Total amortized premiums = 3186+3294 = $6,480

Other comprehensive income = Fair value on December 31, 2014 - (selling price of bonds - total amortized premiums)

= 954,000 - (937,422 - 6,480)

= 954,000 - 930,942 = $23,058. answer is the first option.

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