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A company (the investor) purchased $39,000 of 8%, 5-year bonds from the investee on January 1,...

A company (the investor) purchased $39,000 of 8%, 5-year bonds from the investee on January 1, 2020. The bonds sold for $42,800. Using the effective-interest method, the investor company amortized the premium/discount for the investee bonds by $277 and $334 on 12/31/2020 and 12/31/2021, respectively At December 31, 2020, the fair value of the investee bonds was $30,000. At December 31, 2021, the fair value of the investee bonds was $51,000 What should the investor company report as unrealized holding gains or losses for the year ended on 12/31/2021?

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Answer #1

Answer :

Step 1:

1)Amortized cost of bond investment on December 31, 2020 = $42,800 - $277 = $42,523

2)Fair value of the bonds on December 31, 2020 = $30,000

Therefore,

Unrealized holding loss on 12/31/2020 = $42,523 - $30,000 = $12,523

Step 2 :

1)Amortized cost of bond investment on December 31, 2021 = $30,000 - $334 = $29,666

2)Fair value of the bonds on December 31, 2020 = $51,000

Therefore,

Unrealized holding gain on 12/31/2021 = $51,000 - $29,666 = $21,334

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