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Nugent Corporation purchased $30,000 of Rylander Company's 8% bonds on July 1, 2020 at par. The...

Nugent Corporation purchased $30,000 of Rylander Company's 8% bonds on July 1, 2020 at par. The bonds mature on June 30, 2025. Nugent classifies the investment as a held-to-maturity security. However, on July 1, 2020, Nugent chooses to account for the investment using the fair value option. If the fair value of the Rylander bonds is $31,200 on December 31, 2020, what will be recorded in the adjusting entry made by Nugent Corporation?

Group of answer choices

Unrealized gain $31,200 – Reported in Net Income

None of these is correct.

Unrealized loss $31,200 – Reported in Other Comprehensive Income

Unrealized gain of $1,200 – Reported in Other Comprehensive Income

Unrealized gain $1,200 – Reported in Net Income

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Answer #1

Answer :- None of these is correct.

As per IFRS 9, since Nugent Corporation is not meeting both the conditions of Business test model i.e. Collecting Contractual cash flows AND Selling the financial asset before date of maturity. Hence we cannot opt for Fair Value method through Other Comprehensive Income and we have to go for amortized cost method only.

Therefore, there is no need process an adjusting entries in the books to record difference between Cost Price and fair value of Bonds.

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