Question

Pharoah Company purchased $2600000 of 8%, 5-year bonds from Sheridan, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $2724740 at an effective interest rate of 7%. Using the effective-interest method, Pharoah Company decreased the Available-for-Sale Debt Securities account for the Sheridan, Inc. bonds on July 1, 2021 and December 31, 2021 by the amortized premiums of $9820 and $10180, respectively. At December 31, 2021, the fair value of the Sheridan, Inc. bonds was $2780000. What should Pharoah Company report as other comprehensive income and as a separate component of stockholders' equity

Answer 1

Answer:

$75,260

Explanation:

Calculation for What should Pharoah Company report as other comprehensive income and as a separate component of stockholders' equity

Using this formula

Comprehensive income/separate component of stockholders' equity=Fair value-(Sales of bonds-July 1, 2021 Amortized premiums-December 31, 2021 Amortized premiums)

Let plug in the formula

Comprehensive income/separate component of stockholders' equity=$2,780,000 - ($2,724,740 - $9,820 - $10,180)

Comprehensive income/separate component of stockholders' equity=$2,780,000-$2,704,740

Comprehensive income/separate component of stockholders' equity= $75,260

Therefore What should Pharoah Company report as other comprehensive income and as a separate component of stockholders' equity is $75,260