Question

On January 12, 2021. Jefferson Corporation purchased bonds of Rose Corporation for $75 million at par and classified the securities as available for sale. On December 31 2021, these bonds were valued at $68 million Nine months later, on October 3, 2022, Jefferson Corporation sold these bonds for 586 million As part of the multistep approach to record the 2022 transaction Jefferson Corporation should next take the second step of Reversing total accumulated unrealized holding gains of $25 milion Reversing total accumulated unrealized holding gains of $18 milion Reversing total accumulated unrealized holding gains of S7 million Reversing total accumulated unrealized holding gains of $11 milion

Answer 1

Option (c) is correct

Available for sale debt securities are reported  at fair value on balance sheet date with unrealized holding gains or losses shown in the other comprehensive income. On December 31, 2021, these securities were reported at $68m, And, $7m (i.e. $75 - $68)  will be unrealized holding gain or loss (loss).

When these securities are sold in 2022, then total realized gain on sale is $18m (i.e. $86m - $68m). Unrealized gain (loss) of $7, previously reported for these securities will be reversed.