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Would like a step by step assistance with this question.
On January 1, 20X5, an entity. bought $4,750,000 of five-year, 4% Straight Arrow bonds. The bonds pay interest annually on December 31. When Hillside bought the bonds, the market rate of interest was 5% and the company classified the bond investment as FVOCI.
Market value information on the bonds:
Date Market value
December 31, 20X5 $5,900,000
December 31, 20X6 5,800,000
December 31, 20X7 5,850,000
December 31, 20X8 5,650,000
December 31, 20X9 5,750,000
What is the balance in the reserves account — accumulated other comprehensive income (AOCI) — at December 31, 20X6, that is associated with these bonds?
Accumulated other comprehensive income carries difference between cost of bonds and market value as of December 31, 20X6.
Balance in reserve = Market value - cost = $5,800,000 - $4,750,000 = $1,050,000
Answer is $1,050,000.
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