Question

In: Accounting

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

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