On July 1, Year 1, Walters Corporation purchased as a short-term investment a $2
ID: 2556571 • Letter: O
Question
On July 1, Year 1, Walters Corporation purchased as a short-term investment a $2 million face amount Kempff 6% bond for $1,769,376 plus accrued interest to yield 8%. The bonds mature on January 1, Year 11, and pay interest annually on January 1. On December 31, Year 5, the bonds had a fair value of $1,850,000. On March 1, Year 6, Walters sold the bond for $1,830,000. At what amount should Walters report the bond in its December 31, Year 5 balance sheet if it is classified as an available-for-sale security?
Explanation / Answer
Answer
amount should Walters report the bond in its December 31, Year 5 balance sheet if it is classified as an available-for-sale security = $1,769,376
At any year end, bonds should be valued at lower of cost or market/fair value.
On December 31 of Year 5, fair value of bonds was $1,850,000 which was greater than its cost of $1,769,376.
Therefore, Walters should report the bond in its December 31, Year 5 balance sheet at $1,769,376.
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