Question: P10-22B Classifying and accounting for debt and equity investments

Captain Transfer Corporation generated excess cash and invested in securities as follows:

2018

Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.

Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.

Sep. 16 Sold the Naradon stock for \(13.70 per share.

Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.

Dec. 31 Received a \(600 interest payment from Purple.

31 Adjusted the Purple bond to its market value of \)44,000.

Requirements

Where is the unrealized holding gain or loss associated with the trading debt investment reported?

Step by step solution

01

Definition of Equity Section

The section of the balance sheet that includes all the capital investments made by the business entity owners is known as the equity section.

02

Reporting Unrealized Holding Gains Associated with Trading Debt

The business entity will add unrealized holding gain of trading debt to the net income of the business entity, and net income is included in the retained earnings, which is reported as stockholders’ equity.

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