On July 1,Year 1,Walters Corporation purchased as a short-term investment a $2 million face amount Kempff 6% bond for $1,800,000 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 $1,820,000 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?

Question

Quizplus · Accepted Answer

As per the available-for-sale securities category treatment, Walters should report the investment at its fair value as of the balance sheet date, which is December 31, Year 5, i.e., $1,850,000. The purchase price and the accrued interest rate paid are not relevant in determining the carrying value of the investment at the end of Year 5. Therefore, the correct answer is option C, $1,850,000.

On July 1,Year 1,Walters Corporation Purchased as a Short-Term Investment