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Q. 6SE_2

Expert-verified
Found in: Page 568

Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

Question: S10-6 Accounting for debt investmentsOn June 1, 2018, Josh’s Restaurant decides to invest excess cash of $54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of$51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term. Requirements In what category and at what value would Josh report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Jackrabbit’s stock be reported, if at all?

Bonds investment on the asset side at $51,200. Other comprehensive income:$3,200.

See the step by step solution

Step 1: Definition of Fair Value

Fair value can be defined as the value assigned to any goods or service, considering the demand, supply, and competitive factors. Such value is different from that of market value.

Step 2: Reporting investment on the balance sheet

The investment made in the bonds will be reported on the asset side as available for sale securities. It will be reported as equal to \$51,200.

The loss occurring due to a decrease in the value of the bond will be reported in the other comprehensive income and will be adjusted against the net income.