Question

Problem 9-3

The following amortization schedule is for Monty Ltd.’s investment in Spangler Corp.’s $107,200, five-year bonds with a 10% interest rate and a 8% yield, which were purchased on December 31, 2019, for $115,760:

		Cash Received			Interest Income			Bond Premium Amortized			Amortized Cost of Bonds
Dec. 31, 2019											$115,760
Dec. 31, 2020		$10,720			$9,261			$1,459			114,301
Dec. 31, 2021		10,720			9,144			1,576			112,725
Dec. 31, 2022		10,720			9,018			1,702			111,023
Dec. 31, 2023		10,720			8,882			1,838			109,185
Dec. 31, 2024		10,720			8,735			1,985			107,200

The following schedule presents a comparison of the amortized cost and fair value of the bonds at year end:

		Dec. 31, 2020		Dec. 31, 2021		Dec. 31, 2022		Dec. 31, 2023		Dec. 31, 2024
Amortized cost		$114,301		$112,725		$111,023		$109,185		$107,200
Fair value		$113,508		$115,378		$112,204		$110,080		$107,200

Assume that Monty Ltd. follows IFRS and reports interest income separately from other investment income.

A. Prepare the journal entry to record the purchase of these bonds on December 31, 2019, assuming the bonds are accounted for using the amortized cost model.

B. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2020.

C. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2022.

D. Prepare the journal entry to record the purchase of these bonds, assuming they are held for trading purposes and accounted for using the FV-NI model.

E. Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2021.

F. Prepare the journal entry(ies) related to the bonds accounted for using the FV-NI model for 2023.

Answer 1

Answers

A. December 31, 2019

Bond Invested at amortised cost A/C Dr. 115,760

   Cash   A/C 115,760

B. In 2020

Cash A/C Dr.    10,720

Bond Invested at amortised cost A/C 1,459

Interest Income A/C 9,261

C. In 2022

Cash A/C Dr. 10,720

Bond Invested at amortised cost A/C 1,702

Interest Income A/C 9,018

D. In 2016 FV-NI model.

FV-NI Investments A/C Dr.   115,760

Cash A/C    115,760

E. In 2021 FV-NI model

Cash A/C Dr.   10,720

Investment income or loss A/C 10,720

Investment income or loss     A/C Dr (1870)

FV-NI Investments A/C (1870)

(113,508-115,378)

F. In 2023 FV-NI model

Cash A/C Dr.   10,720

Investment income or loss A/C 10,720

Investment income or loss     A/C Dr 2124

FV-NI Investments A/C 2124

  (112,204 - 110,080)