Question

Landis Company purchased $3,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $3,124,740 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Held-to-Maturity Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $10,620 and $10,980, respectively. At December 31, 2018, the fair value of the Ritter, Inc. bonds was $3,180,000.
What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity?

Answer 1

Answer:

$76,860

Explanation:

Fair value of the Ritter, Inc. bonds = $3,180,000

Carrying amount of the Ritter, Inc. bonds = Sales amount - amortized premiums = $3,124,740 - $10,620 - $10,980 = $3,103,140

Other comprehensive = $3,180,000 - $3,103,140 = $76,860

Landis Company should report $76,860 as other comprehensive income and as a separate component of stockholders' equity.