Question

Delta Company issued $50,000,000 in bonds to Alpha at $100 per bond at the beginning of the year, At year’s end the market price of those bonds is $66 due to a general increase in interest rates ($12) and a deterioration in Alpha’s credit rating (accounting for the remaining $22).

Required:

Show the accounting treatments that should be used under HFT, AFS and HTM, and if not OTTI or OTTI.

Answer 1

Note: As details of interest earned is not given , hence entry is not marked to record same.

	Date	Particulars	Debit	Credit
Available for sale securities	Beginning of year	AFS investment	50000000
		To Bank Account		50000000
		(purchase of bonds)
	year end	unrealized loss on available for sale securities(recored in other comprehensive income)	17000000
		To AFS investment		17000000
		(being journal entry marked to record decline in value)
workings:
No of bonds = 50000000/ 100
=500000
unrealized loss= 500000*34
17000000

	Date	Particulars	Debit	Credit
Held for trading	Beginning of year	AFS investment	50000000
		To Bank Account		50000000
		(purchase of bonds)
	year end	unrealized loss on available for sale securities(recored in income statement)	17000000
		To AFS investment		17000000
		(being journal entry marked to record decline in value)

	Date	Particulars	Debit	Credit
Held till maturity	Beginning of year	AFS investment	50000000
		To Bank Account		50000000
		(purchase of bonds)
	year end	No entry