Hawk corporation purchase 1,000 Diamond Corporation Bonds in 2015 for $500 per b

Question

Hawk corporation purchase 1,000 Diamond Corporation Bonds in 2015 for $500 per bond and classified the investment as securities available for sale. The value of the Diamond investment was $600 per bond on December 31, 2016 and $650 on December 31, 2017. During 2018, Hawk sold all of its Diamond investment at $700 per bond. If Hawk records unrealized holding gains and losses up to the moment of sale, what would be the amount of reclassification adjustment that Hawk would record upon sale?

A. a credit of $150,000

B. a debit of $150,000

C. a debit of $200,000

D. a credit of $200,000

I know the answer I'm trying to understand the calculation.

Explanation / Answer

In 2015-2018, Hawk accumulated an unrealized gain and fair value adjustment of ($650 -500) x 1,000 shares = $150,000. An additional increase of {($700 -650) x 1,000 shares =} $50,000 occurred in 2018, so the total gain realized in the income statement would be $200,000.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.