On December 1, Year 1, Axel Financial purchased $50,000 of bonds issued by Lamb Company at face value. The bonds mature in ten y

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2 months ago

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On December 1, Year 1, Axel Financial purchased $50,000 of bonds issued by Lamb Company at face value. The bonds mature in ten y

ears. Axel’s intent was to sell the bonds soon to earn a profit on any short-term price fluctuations. The fair value of those bonds decreased by $5,000 to $45,000 on December 31, Year 1. Which of the following statements are correct with regards to this investment?
The bonds should be reported among current assets in the balance sheet at December 31, Year 1.

The bonds should be reported among current assets in the balance sheet at December 31, Year 1.

At December 31, Year 1, the $5,000 decrease in fair value should be ignored.

At December 31, Year 1, the $5,000 decrease in fair value should be ignored.

The bonds should be reported at their fair value of $45,000 in the balance sheet at December 31, Year 1.

The bonds should be reported at their fair value of $45,000 in the balance sheet at December 31, Year 1.

An unrealized holding gain in the amount of $5,000 should be included in net income in the income statement prepared for Year 1.

Business

2 answers:

soldi70 [3.6K] · Answer 1 · 2026-03-22T07:38:51+03:00

Bonds must be presented among current assets in the balance sheet dated December 31, Year 1, at their fair value of $45,000. The bonds were acquired for $50,000, with the intention to sell them swiftly for profit from short-term price movements. After decreasing in fair value by $5,000 to $45,000, these bonds qualify as current assets due to their intended quick resale nature. Therefore, they should be accounted for in the balance sheet at the fair value of $45,000.

Nady [3.6K] · Answer 2 · 2026-03-22T07:41:06+03:00

1. True 2. False 3. True 4. False. Explanation: 1. The statement holds true as Axel intends to sell the asset quickly for a short-term gain, qualifying it as a current asset. 2. The adjustment in the asset's fair value is pertinent and should not be disregarded per fair value accounting standards. 3. The bonds must indeed be listed at their fair value of $45,000 on the balance sheet as per fair value accounting principles. 4. The $5,000 decrease in asset value indicates a loss that is not recognized in Net Income until it is realized.