Question

On January 12, Henderson Corporation purchased bonds of Honeycutt Corporation for $73 million and classified the securities as available-for-sale. At the close of the same year, the fair value of the securities is $81 million. Henderson Corporation should report:

Answer 1

Answer:

unrealized gain for 8 millon

Explanation:

The company will report the securities as his fair value but will not recognize a realized gain until it sale them. Currently the securities difference in price is unrealized as the value can drop or increase again. That's why the accoutning to clean up the income from firm from this kind of factors make them account as unrealied gain until sale.

In this case it purchase at 73 millons and has a value of 81 millions thus, unrealized gain of 8 millions