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On June 30, 2015, Pacman Ltd. purchased $1,000,000 of 10 year 4% bonds and classified them...

On June 30, 2015, Pacman Ltd. purchased $1,000,000 of 10 year 4% bonds and classified them as FVTPL. The market rate at time of purchase was 5%. Interest is paid semi-annually on June 30 and December 31. Pacman follows IFRS 9. On December 31,2015, the market rate was 4.6%. On June 30, 2016, Pacman sold all the bonds for $940,000 plus accrued interest.

a. Calculate the purchase price of the bonds.

b. Prepare a bond amortization table for the first two interest periods

c. Prepare all of the journal entries related to the investment in bonds.

Solutions

Expert Solution

Part a & b)

Part c)

Date Particulars Debit Credit
June 30 2015 Pacman Ltd bond 922,054.19
Bank 922,054.19
(Being 4% bond purchased $1,000,000 of 10years)
Dec 31 2015 Accrued interest 23,051.35
Interest income 23,051.35
(Being interest recognised from pacman bond)
Dec 31 2015 Bank 20,000.00
Accrued interest 20,000.00
(Being interest received from pacman bond)
Dec 31 2015 Pacman Ltd bond 32,186.26
Accrued interest 3,051.35
Change in FV (PL) 29,134.91
(Being Fair value of the bond is increased)
June 30 2016 Accrued interest 21,947.53
Interest income 21,947.53
(Being interest recognised from pacman bond)
June 30 2016 Bank 961,947.53
Change in FV (PL) 14,240.45
Accrued interest 21,947.53
Pacman Ltd bond 954,240.45
(Being pacman bond sold)

jeff jeffy answered 2 years ago
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