Question
Wisconsin Corporation makes an investment in the corporate bonds of Badger Corporation for $38,000 at the beginning of Year One. At the end of the
Wisconsin Corporation makes an investment in the corporate bonds of Badger Corporation for $38,000 at the beginning of Year One. At the end of the year, the fair value of the investment equals $34,000. The drop in value is viewed as temporary. During the period, Badger earned $30,000 in income and Wisconsin received interest of $1,800. Which of the following is not true?
1. If this investment is viewed as a trading debt security, it should be reported on a year-end balance sheet at $34,000.
2. If this investment is viewed as available-for-sale debt security, interest revenue is recognized for $1,800.
3. If this investment is viewed as a trading debt security, interest revenue is recognized for $1,800.
4. If this investment is accounted for by means of the equity method, it should be reported on a year-end balance sheet at $34,000.
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