Question

On May 1, 2018, Delta Airlines buys 100 SkyFlight Food Service, Inc. bonds for $1,015 each. Delta classifies this investment as available for sale. This is the first available for sale investment Delta has recorded and the only item that affects comprehensive income during this time period. During 2018, SkyFlight pays all bondholders $42 interest per bond. At the end of 2018, the bonds of Skyflight are trading for $1,020 each. During 2019, Skyflight pays all bondholders interest of $75 per bond. At the end of 2019, the bonds of Skyflight are trading for $1,014 per bond. On May 1, 2020, Delta Airlines sells all of its Skyflight bonds for $1,010 per bond. No interest was paid by Skyflight in 2020. Net income before anything to do with Skyflight (even the interest is not included) for Delta was $20 million in 2018, $16 million in 2019 and $18 million in 2020 after taxes. The tax rate is 20% for all years.

Requirements:

a. Show all the needed journal entries for the Skyflight stock from purchase to sale.

b. Show the statement of comprehensive income for 2018, 2019 and 2020.

c. If accumulated other comprehensive income is $500,000 at the beginning of 2018, what is the accumulated other comprehensive income at the end of 2018, 2019 and 2020

Answer 1

Journal Entries

1/5/2018 Delta air line A/c Dr 1015

To Bonds A/c 1015

31/12/2018 Bonds A/c Dr 1020

Interest A/c Dr 42

To Sky Flight A/c 1062

31/12/2019 Bonds A/c Dr 1014

Interest A/c Dr 75

To Sky Flight A/c 1089

1/5/2020 Bonds A/c Dr 1010

To Sky Flight A/c 1010

Income Statement-2018

Net Income	2,00,00,000
Sales	1062
Less Purchase	1015
Interest	42
Tax	5
Total	20000000

Tax-20*20/80=5

Income Statement-2019

Net Income	160,00,000
Sales	1089
Less Purchase	0
Interest	75
Tax	4
Total	16001010

Income Statement-2020

Net Income	180,00,000
Sales	1010
Less Purchase	0
Interest	0
Tax	4.5
Total	18001005.5

Comprehensive Income

This Comprehensive income is based on assumption

2018-500000 at the end year also 500000

2019-500000*3years/4=375000(20-16million)=4

2020-500000*3years/2=750000(16-18)=2

Above 3 years are based on accounting year assumption