Question

Hawk Corporation purchased 10,000 Diamond Corporation bonds in 2018 for $56 per bond and classified the investment as securities available-for-sale. The value of the Diamond investment was $86 per bond on December 31, 2019, and $100 per bond on December 31, 2020. During 2021, Hawk sold all of its Diamond investment at $144 per bond. In its 2021 income statement, Hawk would report:

Answer 1

Answer: $880,000 as gain

Step-by-step explanation:

Unrecognized gain in 2019:

= 86 - 56

= $30 per bond

Unrecognized gain in 2020:

= 100 - 86

= $14 per bond

Gain from sale:

= (Unrecognized gain 2019 + Unrecognized gain in 2020 + Gain on sale) * no. of bonds

= (30 + 14 + (144 - 100) ) * 10,000

= $880,000 as gain