Question

Bowlah Inc. (Bowlah), a public company, had the following transactions involving passive financial investments during its fiscal year ended December 31, 2019

• On January 1, 2019, Bowlah purchased a 10-year bond from Reep Inc. with a face value of $2,000,000 and a market rate of interest of 4%. The bond pays interest semi-annually at 5.5% per annum on June 30 and December 31. The bond was acquired to collect the principal and interest payments, but if favourable marketconditions arise, Bowlah may elect to sell the bond at a profit.

• On March 31, 2019, Bowlah purchased 15,000 shares of Blip Corp. at a price of $20 per share plus total transaction costs of $500. The shares were designated as FVOCI-elect.

• On May 15, 2019, Bowlah purchased 30,000 shares of Yamat Corp. for $240,000.The shares were designated as fair value through profit or loss.

• On September 30, 2019, Bowlah sold all 15,000 shares of Blip Corp. for$30 per share. Bowlah’s policy is to transfer the net balance of accumulated othercomprehensive income to retained earnings upon derecognition of assets designated as FVOCI-elect

.

At December 31, 2019, Bowlah’s investments had the following fair values:

                             Fair value

Yamat Corp.          $250,000

Reep Inc.             $2,260,000

Required:

Prepare the journal entries to record all investment-related transactions for 2019

.

Answer 1

Journal entries to record all investment-related transactions for 2019

Date	Particular	Debit($)	Credit($)
2019
1 Jan.	Bond Investment a/c	20,00,000
	Bank a/c		20,00,000
	(to record Bonds purchased of Reep Inc.)
31 Mar.	Shares Investment a/c	3,00,000	3,00,500
	Transaction Cost a/c	500
	Bank a/c
	(to record Shares purchased of Blip Corp.)
15-May	Share in Investment a/c	2,40,000
	Bank a/c		2,40,000
	(to record shares purchased of Yamat Corp.)
30-Jun	Interest Receivable a/c	55,000
	Interest Income a/c		55,000
	(to record interest income incurred on bonds but not received)
30-Jun	Bank a/c	55,000
	Interest Receivable a/c		55,000
	(to record Interest amount received)
30 Sep.	Bank a/c	4,50,000
	Share in Investment a/c		4,50,000
	(to record shares sold of Blip Corp.)
31 Dec.	Interest Receivable a/c	55,000
	Interest Income a/c		55,000
	(to record interest income incurred on bonds but not received)
31 Dec.	Bank a/c	55,000
	Interest Receivable a/c		55,000
	(to record Interest amount received)