Question

Sandhill Company purchased $1280000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1329096 at an effective interest rate of 7%. Using the effective interest method, Sandhill Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2021 and December 31, 2021 by the amortized premiums of $5048 and $5192, respectively. At February 1, 2022, Sandhill Company sold the Carlin bonds for $1316800. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2022 was $1320500. Assuming Sandhill Company has a portfolio of available-for-sale debt investments, what should Sandhill Company report as a gain (or loss) on the bonds

Answer 1

-$3,700

Step-by-step explanation:

Data provided as per the requirement of gain or loss on the bonds

Sale Price = $1,316,800

Book value of investment = $1,320,500

The computation of gain (or loss) on the bonds is shown below:-

Gain (Loss) on the bonds = Sale Price - Book value of investment

= $1,316,800 - $1,320,500

= -$3,700

Therefore, for computing the gain (or loss) on the bonds we simply applied the above formula and there is a loss on the bonds of -$3,700