Q11E_3 - Horngren'S Financial And Managerial Accounting

Question

Accounting for debt investments

Peyton Investments completed the following investment transactions during 2018:

2018 

    Jan. 5 Purchased Vedder Company’s \(400,000 bond at face value. Peyton classified the investment as available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and December 31 and matures on December 31, 2021. Management’s intent is to keep the bonds for several years. 

   Jun. 30 Received an interest payment from Vedder. 

   Dec. 31 Received an interest payment from Vedder. 

        31 Adjusted the investment to its current market value of \)396,000

Requirements 

Prepare a comprehensive income statement for Peyton Investments for year ended December 31, 2018. Assume net income was $200,000.

Step-by-Step Solution

Answer

Comprehensive income totals $212,000.

Step 1: Definition of Long-Term Investment

The investment purchased for holding them over a long period of more than one year is known as a long-term investment. 

Step 2: Comprehensive income statement

Particular	Amount $
Net income	$200,000
Add/Less: Other Income and expenses
Unrealized holding loss – available for sale debt investment	($4,000)
Interest revenue	16,000
Comprehensive income	$212,000