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Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available- for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $7,080 and $7,320, respectively. At December 31, 2018, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity?a. $36,840

b. $14,400

c. $51,240

d. No entry should be made.

1 Answer

5 votes

Answer:

correct option is c. $51,240

Step-by-step explanation:

given data

fair value of Ritter Inc = $2,120,000

Landis Company purchased = $2,000,000

rate = 8 %

time = 5 year

bonds sold = $2,083,160

rate = 7%

premiums July 1 = $7,080

premiums December 31 = $7,320

solution

we get here Landis Company comprehensive income as separate component of stockholders' equity that is express as

comprehensive income = fair value of Ritter - ( bonds sold - premiums July 1 - premiums December 31 ) ..................1

put here value and we get

comprehensive income = $2,120,000 - ( $2,083,160 - $7,080 - $7,320 )

comprehensive income = $51240

so correct option is c. $51,240

User Marik Ishtar
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