Question

On January 1, Year 1, Broglie Company purchased $922,000 of bonds issued by Caro Company at face value. Broglie had the positive intent and ability to hold debt securities to maturity. On December 31, Year 1, those bonds had a fair value of $950,000. That change in fair value was deemed to be temporary. Due to a change in circumstances, Broglie sold those bonds for $976,000 on March 1, Year 2. What is the amount of the gain that will be reported in net income for Year 2?

Answer 1

Answer:

zero

The adjustment will be made to other comprehensive income

Explanation:

At December 31th the company wasn't using the fair value method. It was using the amortised cost method. The objective was to hold assets ito maturity.

When the bonds were sold on March 1 Year 2

The Company will have to reclassifies their financial assets. And use the Fair value through other comprehensive income method.