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Chapter 10: Q6RQ. (page 566)

When disposing of an available-for-sale debt investment, where is the gain or loss on disposal reported in the financial statements?

Short Answer

Expert verified

Gain or loss on disposal is reported on the income statement.

Step by step solution

01

Definition of Unrealized Gains

An increase in the value of any asset or investment held by the business that is not sold yet is known as unrealized gain. Such gain is included in the comprehensive income.

02

Reporting Gain and Loss on Disposal of Available for Sale Debt Investment

Gains arising from the disposal of available for sale debt investment must be reported as other income on the income statement. Any loss arising from such disposal must be recorded on the income statement as other loss. This gain/loss is reported separately from the operating income and losses.

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Most popular questions from this chapter

What does the rate of return on total assets measure, and how is it calculated?

Accounting for debt investments

League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.

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League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.

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Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh鈥檚 Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit鈥檚 bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.

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Journalize the transactions for Josh鈥檚 investment in Jackrabbit, Inc. for 2018.
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