On January 9, 2006, Company X purchased $1,000,000 of government bonds and 100,000 shares of stock in Company S for $2,000,000. They are the first marketable securities purchased in the company’s history. The company intends on holding the stock for the foreseeable future and holding the bonds to maturity. As of December 31, the bonds were valued at $900,000, and the stocks were valued at $2,200,000. The bonds paid $50,000 of interest and the stocks paid $20,000 of dividends. In 2006, Company S had earnings per share of $0.90. The marketable securities balance amount shown on the balance sheet is: A) $3,000,000. B) $3,200,000. C) $3,100,000.
Bonds HTM 1000 Stocks in S: Available for Sale: Value 2200 so 3200
ditto that on 3.2mm
Why not $3.1mm? Aren’t H-t-M securities supposed to be quoted at AMORTIZED cost, not historical cost. I thought the $900,000 was amortized cost? Someone should correct me!
how do you think you know how to amortize this bond? Whats its maturity? Theoretically you are correct, but the question isnt giving you the info to do it.
900 is the market value, not the amortized cost.
To Bubu & TvPM, I think you have to assume that they bought the gov’t bonds at par because they don’t say otherwise. So amortization wouldn’t come into play here. I can see how the term “valued” threw you off and made you think that is the amortized cost tho.
The 50000 interest and 20000 dividends (realized gains) goes on the income statement, not balance sheet, so the answer is just 32000000.