In: Accounting
The following information relates to the Houston Company for investments they purchased in 2017. Use this information for the remaining quiz questions:
Classification | Cost or Amortized Cost |
Fair Value at end if 2017 |
Interest Income in 2017 |
Sales Price in 2018 |
---|---|---|---|---|
Trading | $15,000 | $14,000 | $750 | $14,500 |
Available-for-Sale | $18,000 | $15,000 | $1,000 | $16,000 |
Held-to-Maturity | $24,000 | $25,500 | $950 |
Part 1: What is the $ amount that Houston will show on the balance
sheet at the end of 2017?
Select one:
a. $57,000
b. $54,500
c. $53,000
d. $58,500
Part 2: The following information relates to the Houston Company for investments they purchased in 2017. Use this information for the remaining quiz questions:
Classification | Cost or Amortized Cost |
Fair Value at end if 2017 |
Interest Income in 2017 |
Sales Price in 2018 |
---|---|---|---|---|
Trading | $15,000 | $14,000 | $750 | $14,500 |
Available-for-Sale | $18,000 | $15,000 | $1,000 | $16,000 |
Held-to-Maturity | $24,000 | $25,500 | $950 |
For the Houston Company, what amount will appear on the income statement in 2017?
Select one:
a. $1,700
b. $2,700
c. ($300)
d. $3,000
e. ($2,500)
Part 3: The following information relates to the Houston Company for investments they purchased in 2017. Use this information for the remaining quiz questions:
Classification | Cost or Amortized Cost |
Fair Value at end if 2017 |
Interest Income in 2017 |
Sales Price in 2018 |
---|---|---|---|---|
Trading | $15,000 | $14,000 | $750 | $14,500 |
Available-for-Sale | $18,000 | $15,000 | $1,000 | $16,000 |
Held-to-Maturity | $24,000 | $25,500 | $950 |
For the Houston Company, what is the unrealized gain or loss that will appear in the Accumulated Other Comprehensive Account in 2017?
Select one:
a. $2,500 Loss
b. $1,000 Loss
c. $4,000 Loss
d. $3,000 Loss
e. $1,500 gain
Part 4: The following information relates to the Houston Company for investments they purchased in 2017. Use this information for the remaining quiz questions:
Classification | Cost or Amortized Cost |
Fair Value at end if 2017 |
Interest Income in 2017 |
Sales Price in 2018 |
---|---|---|---|---|
Trading | $15,000 | $14,000 | $750 | $14,500 |
Available-for-Sale | $18,000 | $15,000 | $1,000 | $16,000 |
Held-to-Maturity | $24,000 | $25,500 | $950 |
For Houston Company, what is the realized gain or loss in 2018?
Select one:
a. $2,500 Loss
b. $1,500 Gain
c. $2,500 Gain
d. $1,500 Loss
In this question we are required to calculate value of investment to be shown on the balance sheet, and recognitiono of gain/ loss on valuation, realised Gain/loss during year 2018.
To answer the questions, we have to understand the concept of valuation of investment and recognition of the unrealised gain/loss on the same, and concept of recognition of realised Gain/loss on investment.
The concepts are summarised in the table given below:
Class of investment | Valued at | Recog. Of unrealised gain/loss | Recognition of Interest income |
Trading investment | Fair Value | In Income Statement | In income statement |
Investment Available for Sale | Fair Value | in Other Comprehensive Income | in income statement |
Investment held to maturity | Cost/ Amortized cost | No Unrealised gain/loss | in income statement |
Accordingly the solution of problem is as follows:
A) the $ amount that Houston will show on the balance sheet at the end of 2017:
Class of investment | Valued at | Amout ($) |
Trading | Fair Value at the end | 14000 |
Available for sale | Fair Value at the end | 15000 |
Held to maturity | Cost/Amortization cost | 24000 |
Total | 53000 |
B)Amount that will appear on the income statement in 2017:
Particular | Amount ($) |
Interest on trading investment | 750 |
Interest on investment available for sale | 1000 |
Interest on investment held to maturity | 950 |
Realised Gain/loss on trading investment | (1000) |
Total | 1700 |
C) the unrealized gain or loss that will appear in the Accumulated Other Comprehensive Account in 2017:
= Amount of unrealised gain/loss on Available for Sale investment
= 15000-18000
= $3000 loss
D) the realized gain or loss in 2018:
Realised Gain/loss = Sale value - Book value
Therefore
Particular | Sale value | Book value | Realised Gain/loss ($) |
Trading investment | 14500 | 14000 | 500 |
Available for sale investment | 16000 | 15000 | 1000 |
Total | 1500 Gain |