On January 01, 2024, ABC Corp. purchased XYZ Company bonds when the market interest rate was 6%. The XYZ bonds had a $600,000 maturity value, paid 4% interest semi-annually on June 30th and December 31st, and had a six year life. ABC Corp.'s year-end is at December 31. ABC Corp uses IFRS for reporting purposes and has classified this investment as an Amortized Cost (AC) investment for financial reporting purposes. Please refer to the PV tables provided in the course Required: a) Calculate the price paid by ABC Corp. for the bonds. b) Prepare the journal entry to record the purchase of the bonds. c) Complete the table below that shows the interest revenue, carrying value of bonds, using the effective interest method. Period Cash Payment Interest Revenue 0 a. e. 1 2 i 3 m. b. f. j. n. Amortization Carry Value d. h. L p. C. g. k. O. d) Provide the journal entry to record the interest revenue on June 30, 2024. e) Explain the major difference in accounting treatments between AC investments and FVOCI Investments (ie: what do we need to do for FVOCI investments that we don't need to do for AC investments) - no calculations required for this part.

On January 01, 2024, ABC Corp. purchased XYZ Company bonds when the market interest rate was 6%. The XYZ bonds had a $600,000 maturity value, paid 4% interest semi-annually on June 30th and December 31st, and had a six year life. ABC Corp.'s year-end is at December 31. ABC Corp uses IFRS for reporting purposes and has classified this investment as an Amortized Cost (AC) investment for financial reporting purposes. Please refer to the PV tables provided in the course Required: a) Calculate the price paid by ABC Corp. for the bonds. b) Prepare the journal entry to record the purchase of the bonds. c) Complete the table below that shows the interest revenue, carrying value of bonds, using the effective interest method. Period Cash Payment Interest Revenue 0 a. e. 1 2 i 3 m. b. f. j. n. Amortization Carry Value d. h. L p. C. g. k. O. d) Provide the journal entry to record the interest revenue on June 30, 2024. e) Explain the major difference in accounting treatments between AC investments and FVOCI Investments (ie: what do we need to do for FVOCI investments that we don't need to do for AC investments) - no calculations required for this part.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

See similar textbooks

Similar questions

Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.
Mercer Corporation acquired $400,000 of Park Company’s bonds on June 30, 2018, for $409,991.12. The bonds carry a 12% stated interest rate and pay interest semiannually on June 30 and December 31. The appropriate market interest rate is 11%, and the bonds are due June 30, 2021. Required: 1. Prepare an investment interest income and premium amortization schedule, using the: a. straight-line method b. effective interest method 2. Prepare journal entries to record the December 31, 2018, and December 31, 2020, interest receipts using both methods.
On January 1, 2021, Kaye Ltd. purchased $250,000 of Danford Co.'s 4%, 8-year bonds. The market rate was 5%, and Kaye purchased the bonds for $233,681. The bonds pay interest semi-annually, on June 30 and December 31. Kaye uses the amortized cost model and the effective-interest method to recognize interest income on bond investments. Rounding values to the nearest dollar (if necessary), the entry to recognize receipt of the December 31, 2021 interest payment will include: Question 1 options: DR Cash $5,863 DR Cash $5,842 CR Interest income $5,842 CR Interest income $5,863
On January 1, 2021, Carrots Corporation purchased, as held-for-collection investment, P60,000 of the 8%, 5-year bonds of Cabbage, Inc. for P65,118, which provides a 6% market return. The bonds pay interest semiannually. Instructions: Prepare an amortization table from Year 1 through Year 5. Show the presentation of investment account in the balance sheet as of December 31, 2023.
In its first year of operations, Carla Vista Corporation purchased, available-for-sale debt securities costing $64,000 as a long-term investment. At December 31, 2027, the fair value of the securities is $59,600. Show the financial statement presentation of the securities and related accounts. Assume the securities are noncurrent. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) CARLA VISTA CORPORATION Balance Sheet AA A CARLA VISTA CORPORATION Comprehensive Income Statement $
On January 1, 2021, Panama Company purchased P3,000,000 face amount, 9% bonds. The bonds were purchased to yield 8% interest. The bonds mature on January 1, 2026, and pay interest annually on December 31. The entity used 2 decimal places for the PVF. If measured at amortized cost, how much is the carrying amount of investment in bonds on December 31, 2021?
On December 31, 2020, Alberta Inc. purchased $500,000, 10% bonds issued by Banff Ltd. The bonds have a maturity date of December 31, 2026. The market interest rate on December 31, 2020 was 9.5%. If Alberta Inc. accounts for this investment under the amortized cost model, what is the amount at which the Investment in Banff Ltd. Bonds will be reported on the statement of financial position at December 31, 2021, given that the current market interest rate is 9%? $519,448 $509,599 $511,050 $490,523
On January 1, 2022, BTS Company purchased as debt investments at amortized cost, P1,000,000 of JK Company’s 8% for 906,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2032 and pay interest semi-annually on January 1 and July 1. BTS uses the effective interest method of amortization. In its December 31, 2022 statement of comprehensive income, what amount should BTS report as interest revenue?
On January 1, 2023, Pronghorn Limited pays $105,753 to purchase $110,000 of Chan Corporation 9% bonds. The market rate of interest at the time was 10%. Pronghorn accounts for this investment at amortized cost using the effective interest method. The bonds mature on January 1, 2028, and interest is payable each July 1 and January 1. Note that the bond is acquired on an interest payment date and there is therefore no accrued interest for Pronghorn to pay on January 1. Pronghorn has an August 31 year end (a) * Your answer is incorrect. Calculate the amortization of the discount per month using the straight-line method. (Round answer to 2 decimal places, eg 125.55) SUPPOR
On January 1, 2021, Blue company purchased P1,000,000, 12% bonds for P1,065,000, a price that yields 10%. The bonds pay interest semi-annually every January 1and July 1. At December 31, 2021, each bonds is selling at P1,075. The debt investment is classified as at FVPL. What was the carrying value of the debt investment at December 31, 2021?
On January 1, 2022, BTS Company purchased 3,000, P1,000 face value term bons with a stated rate of 10% as at amortized cost. The bonds pay interest annually on December 31 and will be redeemed entirely by the issuer on December 31, 2025. The bond investment was purchased for P2,819,100 at an effective rate of 12%.On December 31, 2023, the entity changes business model for managing its financial assets and this investment as reclassified as debt investments at fair value through profit or loss. On this date, the bonds are quoted at 101. What is the carrying value of the debt investment on December 31, 2023 prior to reclassification?
On January 1, 2024, Rupar Retallers purchased $100,000 of Anand Company bonds at a discount of $6,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity Investment, and uses the effective interest method. In Rupar's December 31, 2024, journal entry to record the second period of Interest, Rupar would record a credit to interest revenue of Multiple Choice O O $3,000 $3,500 $1.300