Bond Question

[biockout2003]

Greyon Inc. purchased a 5% bond that pays semiannual interest, selling at par, for $100,000. The market value of the bond is increased by $3,000, and the company classifies the instrument as available for sale. Based on this information, which of the following statements is least accurate?
(1)The asset is recorded at $100,000 in the balance sheet.
(2)The gain of $3,000 is recorded in the other comprehensive income statement.
(3)The coupon payments of $5,000 are recorded in the income statement.
You Answered Incorrectly.
The asset will be recorded at $103,000 and the unrealized gain of $3,000 will be recorded in the other comprehensive income as the asset is classified as an available‐for‐sale security.
The correct answer is 3, but I chose 1.
The coupon payment should be 2,500 because it is semiannual.
Why 1 is correct? The bond should not be recognized as fair market value. Am I wrong ?

 

[cpk123]

again you seem to be reading question wrongly. Least accurate is what is asked for.
So 2) is correct - because 3000 of income is recorded in the OCI. 3) is also correct - 2500 per semi annual period, so 5000 in the year- in the income statement.
by elimination 1) is incorrect - so the right answer.

 

[biockout2003]

Apparently, Wiley gave the wrong answer.
The correct answer is 3, but I chose 1.
Thanks for verifying that

 

[cpk123]

coupon payments on bond are not recorded in the income statement. I misread the question.
i misread the answers before. My bad and sorry.
the $3,000 increase in bond value will go on the other comp income - move to equity on the balance sheet. thus balance sheet will show $100,000 original + $3,000 increase.
the $3,000 is other comprehensive income due to bond being classified as Available for Sale.
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Coupon payments would be recorded in the income statement as interest expense - but i guess wiley is saying they should show $2,500 not $5,000… not sure from the statements that all this is happening in a 6 month period.