Question

Feherty, Inc., purchased the following investments during December 2013:
1. 50 of Donald Company's $1,000 bonds. The bonds pay semiannual interest payments and return principal in eight years. Feherty plans to hold 10 of the bonds to collect contractual cash flows over the life of the investment, to hold 10 for investment purposes, possibly selling the bonds if their price appreciates sufficiently, and to sell 30 of the bonds within a few weeks following purchase. Subsequent to Feherty's purchase of the bonds, but prior to December 31, the fair value of the bonds increased to $1,040 per bond, and Feherty sold 15 of the 30 bonds it had held for sale. Feherty also sold 5 of the 10 bonds it had planned to hold to collect contractual cash flows over the life of the investment, and 5 of the bonds it had planned to hold for investment purposes. The fair value of the bonds remained at $1,040 as of December 31, 2013.
2. $25,000 of Watson Company common stock. Feherty does not have the ability to significantly influence the operations of Watson. Subsequent to Feherty's purchase of the equity, the fair value of the equity declined to $20,000, which was the fair value of the equity as of December 31, 2013. Ignore taxes.

Required:
1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock.
2. Calculate the effect of unrealized gains and losses associated with the Donald bonds and the Watson equity on Feherty's net income, other comprehensive income, and comprehensive income for the year ended December 31, 2013.



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  • CreatedDecember 23, 2013
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