Question

Lang Corporation buys and sells debt securities which it classifies as available-for-sale securities. The company's fiscal year ends on December 31. On December 27, 2021, Lang purchased Northwest Communications bonds at par for $700,000. At December 31, the bonds had a fair value of 725,000. On January 3, 2022, the bonds were sold for $737,000. The amount included i 2022 other comprehensive income as a result of this investment would be: (Do not add dollar sign; do not add comma by yourself to your amount; round the answer to the whole number; use minus sign if the amount is negative)

Answer 1

Few points to be noted

1. Available for sale securities are those securities which are not classified either as trading securities or held to maturity securities.
2. Available for sale securities can be either Equity or Debt securites. and are recorded at Fair value.
3. Any Gain or loss on Available for sale secuties will treated as unrealised Gain/loss untill it is actually being sold. and this unrealised Gain/Loss will accounted in Other Comprehensive Income (OCI).

Working

AFS securities purchased = $700,000

Fair value as on 31st December = $725,000

So AFS securites should be revalued on 31st December , and now AFS securities book value is = $725,000

now, diffrence of $25,000 will go to Unrealised Gain - Other comprehensive income (OCI)

on 3rd January Journal enry would be

Cash/Bank...................................................Dr. $737,000
Unrealised Gain - OCI.................................Dr. $25,000
To Realised Gain on AFS securities.......Cr. $37,000
To AFS Securites Cr. $725,000

Hence Amount included in OCI in 2022 would be - $25,000 Debit.

Thanks