Question

Dicker Furriers purchased 4,200 bonds of Loose Corporation on January 10, 2017, for $350 per bond and classified the investment as securities available for sale. Loose's market value was $200 per bond on December 31, 2017, and the decline in value was viewed as temporary. As of December 31, 2018, Dicker still owned the Loose bonds whose market value had declined to $120 per share. The decline is due to a reason that's judged to be other than temporary. Dicker's December 31, 2018, balance sheet and the 2018 income statement would show the following: Investment in Loose stock Income statement loss on investments
a. 504,000 966,000
b. 504,000 336,000
c. 840,000 0
d. 1,470,000 966,000

Answer 1

Answer:B. $504,000 $336,000

Explanation:

Since the investment was classified as for sale it will restated at the end of each accounting period and the company takes cognizance of it's value in the balance sheet and income statement.

The value of the investment as at December 31, 2017 was $200 per bond which totals $840,000 when multiply with the 4200 units.

As at December 31, 2018 the value has dropped to $120 per bond which gives $504,000 when multiply with 4200 units and this is reflected in the balance sheet for December 31, 2018.

The difference in value of $840,000 and $504,000 between the two years of $336,000 is reflected in the income statement as loss on investment.