Question

Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows: 2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for \(13.40 per share.

Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec. 31 Received a \(100 interest payment from Violet.

31 Adjusted the Violet bond to its market value of \)22,000.

Requirements

Where is the unrealized holding gain or loss associated with the trading debt investment reported?

Short answer

The net income of the business entity will include the unrealized holding gain or loss from the trading debt investment.

Step-by-step solution

Definition of Holding Gain

The gains generated by the business entity by holding an asset due to an increase in the value of the asset is known as holding gain.

Unrealized Holding Gain or Loss Associated with Trading Debt

The unrealized holding gains of $2,000 from trading debt investment will be reported in the income statement and included in the net income.