Question

Bella Company purchased debt securities with a face amount of $500,000 for $480,000 and classifies them as trading securities. During the first year, the company amortized $2,000 of the associated discount. At the end of the period, the fair value is $504,000. Bella should recognize a fair value adjustment of

Answer 1

$22,000

Step-by-step explanation:

Given:

Face amount = $500,000

Amount paid = $480,000

Discount amount = $2,000

New Face amount = $504,000

Find:

Fair value adjustment

Computation:

Fair value adjustment = New Face amount - Amount paid - Discount amount

Fair value adjustment = $504,000 - $480,000 - $2,000

Fair value adjustment = $22,000