Question

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $965,000 and sold the bonds on January 3, 2022, for $968,500. At December 31, the bonds had a fair value of $960,000, and S&L has the intent and ability to hold the investment until fair value recovers. What pretax amounts did S&L include in its 2021 and 2022 net income as a result of this investment

Answer 1

Answer:

2021= $0 gain/loss

2022= $3,500 gain

Explanation:

S and L financial buys and sells securities

On December 27, 2021 S&L purchased coca-cola bonds at par for $965,000

The bonds were sold for $968,500 at January 3 2022

At December 31, the bonds had a fair value of $960,000

Since the amount of fair value has reduced greatly below the value at which it was bought on December 31 then, this implies that there will be no gain/loss that will be recognised in the earnings

Therefore,

The Pretax amount that S&L include in its net income as a result of this investment in 2021 is

= $0 gain/loss in earnings

The pretax amount that S&L include in its net income as a result in this investment in 2022 is

= $968,500-$965,000

= $3,500 gain