134 - Dimple Patel ACTP 5007 Summer 2017 Worksheet 3 Investments Problem 1 Investment in Bonds On January 1 2016 Lomax Company purchased \$100,000 of 8

# 134 - Dimple Patel ACTP 5007 Summer 2017 Worksheet 3...

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Dimple Patel 06/25/17 ACTP 5007 - Summer 2017 Worksheet 3 – Investments Problem 1 – Investment in Bonds On January 1, 2016, Lomax Company purchased \$100,000 of 8 percent, five-year bonds of Sherman Company for \$92,278. The bonds were selling for \$94,800 on July 1, 2016 and had an amortized cost of \$92,892. The bonds were selling for \$95,655 as of December 31, 2016 and had an amortized cost of \$93,537 on that date. The bonds pay interest semi-annually on January 1 and July 1, and they mature on January 1 ,2021. Required: 1. Assume that Lomax intends to sell the bond in August of 2016. a.How would they classify this investment? (Trading, Available-for-Sale, Held-to-Maturity)
These bonds, which are now classified as trading securities because of Lomax’s intent onselling them in the near future, show their fair value on the balance sheet, and net income includes any unrealized holding gains and losses. Specifically, in the case of Lomax Company’s purchase, the bonds’ fair value on July 1, 2016, is \$94,800. Because this quantity is more than the purchase price of the bond, the company experiences an unrealized holding gain on the bond (unrealized because the bond hasn’t been sold yet). Therefore, thebond amount reported on the balance sheet on July 1, 2016, would be \$94,800.Therefore, the bond amount reported on the balance sheet on July 1, 2016, would be \$94,800.c.

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