Question
In: Accounting
Novak Corporation made the following purchases of investments during 2017, the first year in which Novak...
Novak Corporation made the following purchases of investments
during 2017, the first year in which Novak invested in equity
securities:
| 1. | On January 15, purchased 7,470 shares of Nirmala Corp.’s common shares at $27.81 per share plus commission of $1,643. | |
| 2. | On April 1, purchased 4,150 shares of Oxana Corp.’s common shares at $43 per share plus commission of $2,797. | |
| 3. | On September 10, purchased 5,810 shares of WTA Corp.’s preferred shares at $22.00 per share plus commission of $2,415. |
On May 20, 2017, Novak sold 2,490 of the Nirmala common shares at a
market price of $29 per share less brokerage commissions of $2,366.
The year-end fair values per share were as follows: Nirmala $25;
Oxana $46; and WTA $23. The chief accountant of Novak tells you
that Novak Corporation holds these investments with the intention
of selling them in order to earn short-term profits from
appreciation in their prices and accounts for them using the FV-NI
model, with no separate reporting of dividends and other types of
FV-NI investment income and losses.
Assume that Novak Corporation follows IFRS 9.
1. Prepare the journal entries to record the three investments. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
2. Prepare the journal entry for the sale of the 2,490 Nirmala shares on May 20. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
3. Prepare the adjusting entry needed on December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
4. Repeat the parts above, assuming
the investments are accounted for using FV-OCI with no recycling.
Novak’s policy is to capitalize transaction costs on the
acquisition of FV-OCI investments and reduce the proceeds on
disposal. (Credit account titles are automatically
indented when the amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts. Round answers to 0 decimal places, e.g.
5,275.)
Solutions
Expert Solution
| Date/S.N. | Account title & Explanation | Debit | Credit | ||||||
| Amount in $ | Amount in $ | Cost per share | |||||||
| Requirement 1 | Jan-15 | FV-NI Investment in Nirmala Corp's Common shares | 209383.7 | 28.02995 | |||||
| Cash | 209383.7 | ||||||||
| To record the FV-NI Investment | |||||||||
| Apr-01 | FV-NI Investment in Oxana Corp's Common shares | 181247 | 43.67398 | ||||||
| Cash | 181247 | ||||||||
| To record the FV-NI Investment | |||||||||
| Sep-10 | FV-NI Investment in WTA corp's prefered shares | 130235 | 22.41566 | ||||||
| Cash | 130235 | ||||||||
| To record the FV-NI Investment | |||||||||
| Requirment 2 | May-20 | Cash | 69844 | ||||||
| FV-NI Investment in Nirmala Corp's Common shares | 69794.57 | ||||||||
| Profit on sale of FV-NI Investment | 49.43 | ||||||||
| To record the profit on sale of FV-NI Investment | |||||||||
| Requirement 3 | Dec-31 | Unrealized Holding loss on FV-NI Investments (Net Income) | 2041.13 | ||||||
| FV-NI Investment in Oxana Corp's Common shares | 9653 | ||||||||
| FV-NI Investment in WTA corp's prefered shares | 3395 | ||||||||
| FV-NI Investment in Nirmala Corp's Common shares | 15089.13 | ||||||||
| Requirement 4 | On the basis of assumption that the investment are accounted for using FV-OCI with no recycling. | ||||||||
| Jan-15 | FV-OCI Investment in Nirmala Corp's Common shares | 209383.7 | |||||||
| Cash | 209383.7 | ||||||||
| To record the FV-OCI Investment | |||||||||
| Apr-01 | FV-OCI Investment in Oxana Corp's Common shares | 181247 | |||||||
| Cash | 181247 | ||||||||
| To record the FV-OCI Investment | |||||||||
| Sep-10 | FV-OCI Investment in WTA corp's prefered shares | 130235 | |||||||
| Cash | 130235 | ||||||||
| To record the FV-OCI Investment | |||||||||
| May-20 | Cash | 69844 | |||||||
| FV-OCI Investment in Nirmala Corp's Common shares | 69794.57 | ||||||||
| Profit on sale of FV-OCI Investment | 49.43 | ||||||||
| To record the profit on sale of FV-OCI Investment | |||||||||
| Dec-31 | Unrealized Holding loss on FV-OCI Investments (Other Comprehensive Income) | 2041.13 | |||||||
| FV-OCI Investment in Oxana Corp's Common shares | 9653 | ||||||||
| FV-OCI Investment in WTA corp's prefered shares | 3395 | ||||||||
| FV-OCI Investment in Nirmala Corp's Common shares | 15089.13 | ||||||||
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