Question

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The following information relates to the Houston Company for investments they purchased in 2017. Use this...

The following information relates to the Houston Company for investments they purchased in 2017. Use this information for the remaining quiz questions:

Debt Investments
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:

Debt Investments
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:

Debt Investments
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:

Debt Investments
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

Solutions

Expert Solution

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

ekkarill92 answered 2 years ago

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