In 2016, Osgood Corporation purchased $7.4 million of 10-year municipal bonds at face value. On December 31, 2018, the bonds had a fair value of $2,900,000 and Osgood reclassified the bonds from held to maturity to trading securities. Osgood's December 31, 2018, balance sheet and the 2018 income statement would show the following: Investment in municipal bonds Income statement loss on investments a. 2,900,000 0 b. 2,900,000 4,500,000 c. 7,400,000 4,500,000 d. 7,400,000 0 Multiple Choice Option b Option c Option d Option a

Question

Business

Kobe Mcbride

8 March, 02:12

In 2016, Osgood Corporation purchased $7.4 million of 10-year municipal bonds at face value. On December 31, 2018, the bonds had a fair value of $2,900,000 and Osgood reclassified the bonds from held to maturity to trading securities. Osgood's December 31, 2018, balance sheet and the 2018 income statement would show the following: Investment in municipal bonds Income statement loss on investments a. 2,900,000 0 b. 2,900,000 4,500,000 c. 7,400,000 4,500,000 d. 7,400,000 0 Multiple Choice Option b Option c Option d Option a

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Answers (1)

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Jakob Kane · Answer 1

Option b

b. 2,900,000 4,500,000

Explanation:

Investment classified as trading securities are reported on the balance sheet on its fair market value rather the book value. Reclassification of the bonds of Osgood Corporation requires that now it should be recorded on fair market value and record any Gain or loss.

Face Value of Bonds = $7.4 million = $7,400,000

Fair market Value of the Bonds = $2,900,000

Loss as result of reclassification = Face value of Bonds - Fair Value of Bonds

Loss as result of reclassification = $7,400,000 - $2,900,000

Loss as result of reclassification = $4,500,000