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Strike441 [17]
2 years ago
6

AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2018. The bonds sold for $150 million. For bond

s of similar risk and maturity the market yield was 9%. Upon issuance, AI elected the option to report these bonds at their fair value. On June 30, 2018, the fair value of the bonds was $145 million as determined by their market value on the NASDAQ. Will AI report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the interest rate, did the rate increase or decrease? Will the gain or loss be reported in net income or as OCI?
Business
1 answer:
Tju [1.3M]2 years ago
5 0

Answer and Explanation:

A will report the gain at the time when the bond is adjusted to the fair value as there is a reduction in the far value of the liabilities that occured the gain. In the case when the fair value is changed so there is also the changed in the rate of interest due to this the rate of interest is rised.

Here A would be reported the gain in the net income as there is the change in the rate of interest due to the change in the fair value

In the case when there is the chaneg in the fair value of the bond so this is because of the change in the credit risk and the same should be shown in the statement of the comprehensive income as other comphrensive income

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