Question

The Magnus Corporation, a publicly accountable entity, had the following investments as at

December 31, 20x2:

Company

Type

Classification

Original

Cost

Carrying

Value

Fair

Value

Will Corp. Shares FVPL $65,000 $61,000 $58,000

Simon Co. Shares FVPL 205,000 212,000 225,000

Craig Inc. Shares FVOCI 82,000 88,000 106,000

Frey Inc. Shares FVOCI 94,000 80,000 88,000

Blandin Co. Bonds FVOCI 210,106 210,106 210,106

The Blandin Co. bonds were purchased on December 31, 20x2. The bonds have a face value of

$200,000, pay interest of 4% semiannually (Jun 30 & Dec 31) and mature on December 31,

20x19. Bond issue costs were capitalized to the FVOCI investment account.

The following transactions took place in 20x3:

Feb 4 Sold the Simon shares for $250,000 less $10,000 in brokerage fees

Mar 31 Purchased shares of Winny Inc. for $105,000 plus $6,500 in brokerage fees. The

shares are classified as FVPL.

April 20 Sold the Frey Inc. shares for $98,000 less $1,800 in brokerage fees.

Aug 12 Purchased shares of Bane Co. for $45,000 plus $1,000 in brokerage fees. The

shares are classified FVOCI.

Dec 31 The fair values of the investments on hand are as follows:

Will Corp. $ 51,000

Craig Inc. 125,000

Blandin Co. 206,000

Winny Inc. 114,000

Bane Co. 29,500

Required –

a) Prepare the journal entries to record all 20x3 transactions for the investments above.

When preparing the December 31, 20x3 fair value adjustment entry, write two journal

entries only: one for the total fair value adjustment on FVPL investments and one for the

total fair value adjustment on FVOCI investments. Do not write a separate journal entry

for each individual investment.

b) Assume that Magnus’s net income for the year ended December 31, 20x3 is $1,000,000.

Prepare the bottom portion of the Statement of Comprehensive Income starting with the

net income line.

c) Prepare a t-account showing the transaction in the A•OCI account from the beginning to

the end of the year. Prove the ending balance.

d) At the end of 20x4 the Blandin Co. bonds were trading at 104. Write all journal entries

for the bonds for the year ended December 31, 20x4.

Answer 1

solution:

Requirement – (a)

Journal Entries

Date

Particulars

Debit (in $.)

Credit (in $.)

Feb-04

Bank

240,000

Brokerage fee

10,000

Profit & Loss account

25,000

Investment in Simon

225,000

Mar-31

Investment in Winny Inc

105,000

Brokerage Fee

6,500

Bank

111,500

Apr-20

Bank

96,200

Brokerage Fee

1,800

OCI

10,000

Investment in Frey Inc

88,000

Aug-12

Investment in Bane Co.

46,000

Bank

46,000

Dec-31

Investment in Winny

9,000

Investment in Will Corp

7,000

Profit and loss

2,000

Dec-31

OCI

1,606

Investment in Craig Inc

19,000

Investment in Blandin Co.

4,106

Investment in Bane Co.

16,500

Requirement – (b)

Statement of Comprehensive Income

Description

Amount (in $.)

Net Income

1,000,000

Less: Losses on FVOCI securities

(1,606)

Net Comprehensive Income

998,394

Requirement – (c)

AOCI Account

Date

Particulars

Amount

(in $.)

Date

Particulars

Amount

(in $.)

Dec-31

Investment in Blandin Co.

4,106

Jan-01

Beginning Balance

18,000

Dec-31

Investment in Bane

16,500

Dec-31

Investment in Craig

19,000

Ending Balance

16,394

Requirement – (d)

Journal Entries

Date

Particulars

Debit (in $.)

Credit (in $.)

Dec - 31

20x2

Blandin Co. – bonds at FVOCI

2,000,000

FVOCI Investment Account

10,106

Cash

210,106

Dec - 31

20x2

Cash (2,000,000 × 4%)

8,000

FVOCI Investment Account

8,000

June - 30

20x3

Cash

8,000

Interest Income

8,000

Dec - 31

20x3

Cash

8,000

Interest Income

8,000

Dec - 31

20x3

FVOCI Investment Account

3,894

OCI

3,894

June - 30

20x4

Cash

8,000

Interest Income

8,000

Dec - 31

20x4

Cash

8,000

Interest Income

8,000

Dec - 31

20x4

FVOCI Investment Account

2,000

OCI

2,0000

I have tried my best in doing all the 4 sub-parts! Do cross-verify the calculations!