In: Accounting
Q18 Neuman classifies its investment in bonds as available-for-sale investment. The investment was purchased at a discount. Which of the following associated account balance(s) must reach zero by the maturity date?
Multiple Choice
Discount on Bonds Payable, OCI-unrealized gain or loss
Discount on Bonds Payable, fair value adjustment, OCI-unrealized gain or loss
Discount on Bonds Payable
Discount on Bonds Payable, fair value adjustment
Correct answer:- Discount on Bonds Payable, fair value adjustment, OCI-unrealized gain or loss |
Discount on bonds payable must be zero at the end of the maturity date. Because all Discount on bonds payable must be amortized during the life of the bonds payable using either effective interest method or straight amortization method. |
If the bonds investment is accounted as available-for-sale investment. Then company needs to records the classification entry to eliminate the fair value adjustment, OCI-unrealized gain or loss. |
Date | Account title | Debit | Credit |
At the date of maturity. | OCI-unrealized gain | XXX | |
Fair value adjustment | XXX | ||
To record for reclassification of OCI-unrealized gain. | |||
Date | Account title | Debit | Credit |
At the date of maturity. | Fair value adjustment | XXX | |
OCI-unrealized loss | XXX | ||
To record for reclassification of OCI-unrealized loss. |