Question

Sandridge Inc. purchased 1,000 Transocean Corporation bonds in 2020 for $500 per bond and classified the investment as securities available for sale. The value of the Transocean Investment was 1600 per bond on December 31, 2021, and $750 per bond on December 31, 2022. During 2023, Hank sold all of its Diamond investment at $800 per bond.

If Sandridge records unrealed holding gains and lowes up to the moment of sale, what would be the amount of reclassification adjustment that Sandridge would record upon sale? 

• A debit of $150,000 

• None of these choices is correct 

• A credit of $250.000 

• A debit of $300.000 

• A bit of $250,000 

Answer 1

S accumulated an unrealized gain and fair value adjustment = ($750 - $500) x 1,000 shares
= $250 x 1,000
= $250,000.

An additional increase = ($750 - $600) x 1,000
= $150 x 1,000
= $150,000

Total gain realized would be = $250,000 + $150,000
= $400,000 debit

b. None of these choices is correct.