Question

1. One hundred and forty of Donald Company’s $1,000 bonds. The bonds pay semiannual interest, return principal in 8 years, and include no other cash flows or other features. Feherty plans to hold 40 of the bonds to collect contractual cash flows over the life of the investment and to hold 100, both to collect contractual cash flows but also to sell them if their price appreciates sufficiently. Subsequent to Feherty’s purchase of the bonds, but prior to December 31, the fair value of the bonds increased to $1,050 per bond, and Feherty sold 40 of the 100 bonds. Feherty also sold 10 of the 40 bonds it had planned to hold to collect contractual cash flows over the life of the investment. The fair value of the bonds remained at $1,050 as of December 31, 2021.
2. $25,900 of Watson Company common stock. Feherty does not have the ability to significantly influence the operations of Watson. Feherty elected to account for this equity investment at fair value through OCI (FVOCI). Subsequent to Feherty’s purchase of the stock, the fair value of the stock investment increased to $31,800 as of December 31, 2021.

Required:
1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock.
2. For each of the following categories of Feherty's investments, calculate the effect of realized and unrealized gains and losses on Feherty’s net income, other comprehensive income, and comprehensive income for the year ended December 31, 2021:
(a) any Donald bonds accounted for at amortized cost that were purchased and held at year end,
(b) any Donald bonds accounted for at amortized cost that were purchased and sold,
(c) any Donald bonds accounted for at FVOCI that were purchased and held at year end,
(d) any Donald bonds accounted for at FVOCI that were purchased and sold, and
(e) the Watson stock. Ignore interest revenue and taxes.

Please I need the answer the answer I got before was wrong

Answer 1

1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock.
2. For each of the following categories of Feherty's investments, calculate the effect of realized and unrealized gains and losses on Feherty’s net income, other comprehensive income, and comprehensive income for the year ended December 31, 2021:
(a) any Donald bonds accounted for at amortized cost that were purchased and heldat year end,
(b) any Donald bonds accounted for at amortized cost that were purchased and sold,
(c) any Donald bonds accounted for at FVOCI that were purchased and held at year end,
(d) any Donald bonds accounted for at FVOCI that were purchased and sold, and
(e) the Watson stock. Ignore interest revenue and taxes.

Refer the below images for more detailed solution with explanation.

: Lent : when Indicate how it acaquired Feherty would account for its the Donald bonds and watson investments Stock- Reafirmer Answer/. The Donald company bonds include only interest y principal, so Feherty's business purpose is relevant for the purpose of classification is reporting Forry (40) bonds are to be held to collect contractual eart flows over the life of the debr, so they would be accounted for at amortized cost. The remaining bonds would be for at fair value through other comprehensive income a as Teherty is holding those bonds both to collect contral cash flows and for sale The Watson company stock would be accounted for at fair value through af (Frock) because that is what Feherty elected Feherry can make that irrevocable election, but otherwise, because it does not quality for the equity method, would account for the Watson equity investment as Fuple + @ Reversement : Calculation of the effect of realized and unrealized gains and losses on feherty's net income other comprehensive income and comprehensive income for year ended Dec 31, 2021 any Donald bonds accounted for at amortized cost that were purchased Es held at year end: to Feherty sold 10 bonds of 40 bonds it had planned to hold to collect contractual cash flows over the life of the investment. :. 30 bonds (40-10) are accounted for at amortized Cost and were not sold. : No urreated gain (or loss would be recognised in other comprehensive income (our) (or) net income.

Effect: $0 in net income $0 in other comprehensive income to in comprehensive income. for at amortized cost that any were Donald bonds purchased accounted 4 sold: * & Feherty Solds to bonds of yo bonds. 10 bands of the amortised cost bonds were sold at a price off 1050 per bond yielding a realized gain on sale of 10x ($ noso - $1000) = f soo Effect : $500 in net income to in on comprehensive income & Too in comprehensive income ③ that were any Donald purchased and bonds held accounted at year for at focL end: * Feherty flows but Sufficiently holds 100 bonds also to sell feherty to collect contractual cash them if their price appreciates sold yo bonds of the 100 bonds. accounted for at Evoch and x 6o bonds (100=40) are were not sold. unrealized gains of & 60+ ($ 1050 - 1000 = $3000 Effect: & o in net income $ 3000 in other comprehensive income $3000 in comprehensive income.

for at Frocł that any were Donald bonds porchased y accounted sold: * 40 bands of Frock bonds were sold at a of s loso per bond liuding a realized Sale of 40 + ($1050 - 1000) = 12000 price on gain Effect : $ 2000 s o in $ 2000 in net income other comprehensive income in Comprehensive income o the watson Stock The Watson Company common stock investment is gain of accounted § 5900 for at Fvoll o unrealized [31800 -$25900] Effect : $0 in net $ 5900 in $5900 in income other comprchensive comprehensive income income - Ne out. Sommarp Etats: of s: 0 Net income: Realized gain on 10 bonds sold that were amortised $500 Realized gain on 40 bonds sold that were at Evolt $ 2000 pasou ② other comprehensive income. (af) Unrealised gain on to bonds retained that are at Evoch & 3000 unrealised gain on watson equity accounted for at Evocc $5900 $8900 comprehensive income? - net income & ar - 2500+ $8900 - 1400