Question

Richman Company purchased $900,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2022, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Richman Company decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2022 and December 31, 2022 by the amortized premiums of $3,186 and $3,294, respectively. At December 31, 2022, the fair value of the Carlin, Inc. bonds was $954,000. What should Richman Company report as other comprehensive income in the 2022 Comprehensive Income Statement

Answer 1

$23,058

Step-by-step explanation:

For calculation of Other comprehensive income first we will find out the total amortized premiums which is shown below:-

Total amortized premiums = 3,186 + 3,294

= $6,480

Other comprehensive income = Fair value on December 31, 2022 - (Selling price of bonds - Total amortized premiums)

= $954,000 - ($937,422 - $6,480)

= $954,000 - $930,942

= $23,058

We simply applied the above formula.