E9.11 (LO 3, 4, 8) (Equity Investment Entries-FY-NI and FV-OCI) Arantxa Corporation made the following purchases of inve
Posted: Sun Jun 05, 2022 6:47 pm
E9.11 (LO 3, 4, 8) (Equity Investment Entries-FY-NI and FV-OCI)
Arantxa Corporation made the following purchases of investments
during 2020, the first year in which Arantxa invested in equity
securities: 1. On January 15, purchased 9,000 shares of Nirmala
Corp.'s common shares at $33.50 per share plus commission of
$1,980. 2. On April 1, purchased 5,000 shares of Oxana Corp.'s
common shares at $52.00 per share plus commission of $3,370. 3. On
September 10, purchased 7,000 shares ofWTA Corp.'s preferred shares
at $26.50 per share plus commission of $2,910. On May 20, 2020,
Arantxa sold 3,000 of the Nirmala common shares at a market price
of $35 per share less brokerage commissions of $2,850. The year-end
fair values per share were as follows: Nirmala $30, Oxana $55, and
WTA $28. The chief accountant of Arantxa tells you that Arantxa
Corporation holds these investments with the intention of selling
them in order to earn short-term profits from appreciation in their
prices and accounts for them using the FV-NI model. Assume that
Arantxa Corporation follows IFRS.
Instructions
a. Prepare the journal entries to record the three
investments.
b. Prepare the journal entry(ies) for the sale of the 3,000
Nirmala shares on May 20.
c. Prepare the adjusting entries needed on December 31,
2020.
d. Repeat parts (a) to (c), assuming the investments are
accounted for using FV-OCI with no recycling. Arantxa's policy is
to capitalize transaction costs on the acquisition of FV-OCI
investments and reduce the proceeds on disposal. In addition, the
company reclassifies any gains or losses on disposition to Retained
Earnings.
e. What is the amount that will be reported as other
comprehensive income for the year ended December 31, 2020? Show the
wording that would appear on the comprehensive income
statement.
f. What will be the balance in Accumulated Other Comprehensive
Income on December 31, 2020?
Arantxa Corporation made the following purchases of investments
during 2020, the first year in which Arantxa invested in equity
securities: 1. On January 15, purchased 9,000 shares of Nirmala
Corp.'s common shares at $33.50 per share plus commission of
$1,980. 2. On April 1, purchased 5,000 shares of Oxana Corp.'s
common shares at $52.00 per share plus commission of $3,370. 3. On
September 10, purchased 7,000 shares ofWTA Corp.'s preferred shares
at $26.50 per share plus commission of $2,910. On May 20, 2020,
Arantxa sold 3,000 of the Nirmala common shares at a market price
of $35 per share less brokerage commissions of $2,850. The year-end
fair values per share were as follows: Nirmala $30, Oxana $55, and
WTA $28. The chief accountant of Arantxa tells you that Arantxa
Corporation holds these investments with the intention of selling
them in order to earn short-term profits from appreciation in their
prices and accounts for them using the FV-NI model. Assume that
Arantxa Corporation follows IFRS.
Instructions
a. Prepare the journal entries to record the three
investments.
b. Prepare the journal entry(ies) for the sale of the 3,000
Nirmala shares on May 20.
c. Prepare the adjusting entries needed on December 31,
2020.
d. Repeat parts (a) to (c), assuming the investments are
accounted for using FV-OCI with no recycling. Arantxa's policy is
to capitalize transaction costs on the acquisition of FV-OCI
investments and reduce the proceeds on disposal. In addition, the
company reclassifies any gains or losses on disposition to Retained
Earnings.
e. What is the amount that will be reported as other
comprehensive income for the year ended December 31, 2020? Show the
wording that would appear on the comprehensive income
statement.
f. What will be the balance in Accumulated Other Comprehensive
Income on December 31, 2020?