Question

Sandhill Company purchased $2800000 of 7%, 5-year bonds from Whispering, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $2924740 at an effective interest rate of 6%. Using the effective-interest method, Sandhill Company decreased the Available-for-Sale Debt Securities account for the Whispering, Inc. bonds on July 1, 2021 and December 31, 2021 by the amortized premiums of $10220 and $10580, respectively.

At February 1, 2019, Sandhill Company sold the Carlin bonds for $1316800. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2019 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

Loss = $3,700

Step-by-step explanation:

As per the data given in the question,

The loss in sale Carlin, Inc bonds

Bond purchased = $2800000

Rate = 7%

Time = 5 year bond

Bonds sold = $2924740

Interest rate = 6%

Premiums = $10220 and $10580

Sale price = $1316800

Book value of investment = $1320500

Loss = sale price - book value of investment

=$1316800 - $1320500

= -$3,700 ( Negative shows Loss)