You have an upcoming test in intermediate accounting. You and your colleagues Mohamed and Mustafa have made
Question:
You have an upcoming test in intermediate accounting. You and your colleagues Mohamed and Mustafa have made a study group preparing for the test on debt investment You were discussing Awal Company's purchase of the following bonds beginning of the year 2020. -Purchase of two identical sets of 5-year bonds; $100,000, 7% bonds of Zallaq Company and $100,000, 7% of Areen Company. Both Bonds meet the criteria to hold-to-maturity. You were discussing how Awal should measure and account for these investments taking into consideration the current situation of the COVID-19 pandemic Mohamed and Mustafa express their opinions on these investments. Mohamed believes that on the date of purchase Awal should initially record both bonds on date of purchase at an amortized cost since they are going to be held to maturity However, he adds, that Awal can choose the fair value option in subsequent years and report any unrealized gain or loss in the income statement in order to improve the company's earnings that are being affected by COVID-19 conditions.
Do you agree with Mohamed? If not explain to him why you disagree.
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn