Goofy Inc. bought a sizeable amount of Crazy Co.'s bonds for $150,000 on May 5, 2017, and classified the investment as available for sale. The market value of the bonds declined to $118,000 by December 31, 2017. Goofy reclassified this investment as trading securities in December of 2018 when the market value had risen to $125,000. What effect on 2018 income should be reported by Goofy for the Crazy Co. bonds?

Question

Quizplus · Accepted Answer

Unrealized holding loss of $32,000 recorded in an allowance during 2017, but not included in the income statement. When the bonds are reclassified in 2018, the $32,000 goes into the income statement. In addition, $7,000 unrealized holding gain for 2018 goes directly to income.

Goofy Inc Bought a Sizeable Amount of Crazy Co