15. On January 1, 2018, Concord Ltd. paid $264,650.67 for 12% bonds of Variation Ltd. with a maturity value of $246,000.
Posted: Sat Mar 19, 2022 5:43 pm
15. On January 1, 2018, Concord Ltd. paid
$264,650.67 for 12% bonds of Variation Ltd. with a maturity
value of $246,000. The bonds provide the bondholders with a 10%
yield. They are dated January 1, 2018, mature on January 1, 2024,
and pay interest each December 31. Concord acquired the
bond investment as part of its portfolio of trading securities and
it accounts for the bonds at FV-NI, following IFRS. At December 31,
2018, Concord’s year end, the bonds had a fair value of
$263,000.00.
During 2019, the economic outlook related to Variation Ltd.’s
primary business took a major downturn, so that Variation’s debt
was downgraded. By the end of 2019, the bonds were priced at 85.5,
and at December 31, 2020, they were selling in the market at 87.
Conditions reversed in 2021 and the outlook for Variation Ltd.
significantly improved, leaving its bonds with a fair value of 99.5
at December 31, 2021.
A) Prepare a bond amortization table for the four-year period
ending December 31, 2021. (Round answers to 2
decimal places, e.g. 52.75.)
B) Prepare the entries to record Concord’s purchase of the
bonds on January 1, 2018, the recognition of interest income and
interest received on December 31, 2018, and the fair value
adjustment required at December 31, 2018. (Credit
account titles are automatically indented when the amount is
entered. Do not indent manually. If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts.
Round answers to 2 decimal places, e.g. 52.75.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2018
Dec. 31, 2018
(To record collection of interest)
(To record fair value adjustment)
C) Prepare all entries required for 2019, including recognition
of the impairment in value if necessary, and for
2020. (Credit account titles are automatically
indented when the amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts. Round answers to 2 decimal places, e.g.
52.75.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2019
(To record collection of interest)
(To record fair value adjustment)
Dec. 31, 2020
(To record interest income)
(To record fair value adjustment)
D) Prepare all entries required for 2021, including recognition
of the recovery of the impairment in value, if
necessary. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Round answers to 2
decimal places, e.g. 52.75.)
Date
Account Titles and Explanation
Debit
Credit
(To record collection of interest)
(To record fair value adjustment)
$264,650.67 for 12% bonds of Variation Ltd. with a maturity
value of $246,000. The bonds provide the bondholders with a 10%
yield. They are dated January 1, 2018, mature on January 1, 2024,
and pay interest each December 31. Concord acquired the
bond investment as part of its portfolio of trading securities and
it accounts for the bonds at FV-NI, following IFRS. At December 31,
2018, Concord’s year end, the bonds had a fair value of
$263,000.00.
During 2019, the economic outlook related to Variation Ltd.’s
primary business took a major downturn, so that Variation’s debt
was downgraded. By the end of 2019, the bonds were priced at 85.5,
and at December 31, 2020, they were selling in the market at 87.
Conditions reversed in 2021 and the outlook for Variation Ltd.
significantly improved, leaving its bonds with a fair value of 99.5
at December 31, 2021.
A) Prepare a bond amortization table for the four-year period
ending December 31, 2021. (Round answers to 2
decimal places, e.g. 52.75.)
B) Prepare the entries to record Concord’s purchase of the
bonds on January 1, 2018, the recognition of interest income and
interest received on December 31, 2018, and the fair value
adjustment required at December 31, 2018. (Credit
account titles are automatically indented when the amount is
entered. Do not indent manually. If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts.
Round answers to 2 decimal places, e.g. 52.75.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2018
Dec. 31, 2018
(To record collection of interest)
(To record fair value adjustment)
C) Prepare all entries required for 2019, including recognition
of the impairment in value if necessary, and for
2020. (Credit account titles are automatically
indented when the amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts. Round answers to 2 decimal places, e.g.
52.75.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2019
(To record collection of interest)
(To record fair value adjustment)
Dec. 31, 2020
(To record interest income)
(To record fair value adjustment)
D) Prepare all entries required for 2021, including recognition
of the recovery of the impairment in value, if
necessary. (Credit account titles are
automatically indented when the amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Round answers to 2
decimal places, e.g. 52.75.)
Date
Account Titles and Explanation
Debit
Credit
(To record collection of interest)
(To record fair value adjustment)