Question
Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The
Landis Company purchased $2,000,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Landis Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively.
At December 31, 2014, the fair value of the Ritter, Inc. bonds was $2,120,000. What should Landis Company report as other comprehensive income and as a separate component of stockholders' equity?
a. $36,840
b. $14,400
c. $51,240
d. No entry should be made.
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