Question

On March 25, 2021, Phillips Corporation purchased bonds of Atlas Corporation for $182 million and classified the securities as trading securities. On December 31, 2021, these bonds were valued at $205 million. Three months later, on April 3, 2022, Phillips Corporation sold these bonds for $192 million.

As part of the multistep approach to record the 2022 transaction, Phillips Corporation should first update the fair value adjustment by recording:

Multiple Choice

• An unrealized holding gain of $36 million in 2022.

• An unrealized holding loss of $13 million in 2022.

• An unrealized holding gain of $10 million in 2022.

• A gain of $10 million in 2022.

Answer 1

Philips corporation should first update the fair value adjustment by recording:

Correct option is

• An unrealized holding loss of $13 million in 2022

Explanation:

Given:

Sales price of bonds = $192 million

Purchase price of bonds = $182 million

Fair value of bonds as on Dec 31, 2021 = $205 million

As on April 3, 2022, date of sale of bonds, as a part of the multiplestep approach, the corporation should first update the fair value adjustment by recording unrealized holding gain or loss.

Unrealized holding Gain/Loss in 2022

= Sale price of bonds - Fair value of bonds

= $192 million - $205 million

= - $13 million

= $13 million, unrealized holding loss

______×______

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