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3 August, 05:47

Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available - for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $7,080 and $7,320, respectively. At December 31, 2018, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity? a. $36,840

b. $14,400

c. $51,240

d. No entry should be made.

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Answers (1)
  1. 3 August, 07:58
    0
    correct option is c. $51,240

    Explanation:

    given data

    fair value of Ritter Inc = $2,120,000

    Landis Company purchased = $2,000,000

    rate = 8 %

    time = 5 year

    bonds sold = $2,083,160

    rate = 7%

    premiums July 1 = $7,080

    premiums December 31 = $7,320

    solution

    we get here Landis Company comprehensive income as separate component of stockholders' equity that is express as

    comprehensive income = fair value of Ritter - (bonds sold - premiums July 1 - premiums December 31) ... 1

    put here value and we get

    comprehensive income = $2,120,000 - ($2,083,160 - $7,080 - $7,320)

    comprehensive income = $51240

    so correct option is c. $51,240
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Home » Business » Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%.
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