Ivanhoe Company purchased $3100000 of 8%, 5-year bonds from Ritter, Inc. on Janu
ID: 2538372 • Letter: I
Question
Ivanhoe Company purchased $3100000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $3222740 at an effective interest rate of 7%. Using the effective-interest method, Ivanhoe Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $10820 and $11180, respectively.
At April 1, 2019, Ivanhoe Company sold the Ritter bonds for $3190000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2019 was $3197440. Assuming Ivanhoe Company has a portfolio of Available-for-Sale Debt Securities, what should Ivanhoe Company report as a gain or loss on the bonds?
Explanation / Answer
Carrying Value $3197440 (A)
Selling price: $3190000 (B)
Loss: (B)-(A)=$ 7,440
Hence Answer is option D: $-7440.
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