Question

The following information relates to the 2020 debt and equity investment transactions of Sarasota Ltd., a publicly accountable Canadian corporation. All of the investments were acquired for trading purposes and accounted for using the FV-NI model, with all transaction costs being expensed. No investments were held at December 31, 2019, and the company prepares financial statements only annually, each December 31, following IFRS.

1. On February 1, the company purchased Williams Corp. 12% bonds, at par value for $560,000, plus accrued interest. Interest is payable April 1 and October 1.

2. On April 1, semi-annual interest was received on the Williams bonds.

3. On July 1, 9% bonds of Saint Inc. were purchased. These bonds, with a par value of $198,000, were purchased at par plus accrued interest. Interest dates are June 1 and December 1. 4. On August 12, 3,400 shares of Scotia Corp. were acquired at a cost of $59.00 per share. A 1% commission was paid.

5. On September 1, Williams Corp. bonds with a par value of $112,000 were sold at 104.6 plus accrued interest.

6. On September 28, a dividend of $0.56 per share was received on the Scotia Corp. shares.

7. On October 1, semi-annual interest was received on the remaining Williams Corp. bonds.

8. On December 1, semi-annual interest was received on the Saint Inc. bonds.

9. On December 28, a dividend of $0.58 per share was received on the Scotia Corp. shares.

10. On December 31, the following fair values were determined: Williams Corp. bonds 102.00; Saint Inc. bonds 97; and Scotia Corp. shares $61.80.

required:

1.Prepare all 2020 journal entries necessary to properly account for the investment in the Williams Corp. bonds.

2.Prepare all 2020 journal entries necessary to properly account for the investment in the Saint Inc. bonds.

3.Prepare all 2020 journal entries necessary to properly account for the investment in the Scotia Corp. shares.

Answer 1

Feb 1,

   Debit ($)    Credit ($)

Investments in William Corp Bonds    560,000

Interest Receivable    22,400

( 560000*.0.12*4/12)

Cash 582,400

(To record bonds purchased at par value plus accrued interest.)

April 1,

Cash A/c 33,600

Interest Receivable 22,400

Interest Revenue 11,200

( To record bond interest revenue of William Corp Bond)

July 1,

Investments in Saint Inc Bonds    198,000

Interest Receivable 1,485

( 198000*.0.09*1/12)

Cash 199,485

(To record bonds purchased at par value plus accrued interest.)

Aug12,

Investments in Scotia Corp Shares 200,600

Commision Exps    2,060

Cash 202,660

(To record Shares purchased )

Sep 1,

Cash 122,752  

  Investments in William Corp Bonds 112,000

  Interest Revenue 5,600   

(112000*0.12*5/12)      

Profit on sale of Investment 5.152

((112000 *104.6/100) - 112000)

(To record bonds sale at profit plus accrued interest.)

Sep 28,

Cash 1,904

Dividend Income 1,904

(To Record dividend received)

Oct 1

Cash A/c 26,880

Interest Revenue 26,880

(448000*0.12*6/12)

( To record bond interest revenue of William corp Bonds)

Dec 1,

Cash A/c 8,910

Interest Revenue   8,910

(198000*.09*6/12)

( To record bond interest revenue of Saint Inc Bonds)

Dec 28,

Cash 1,972

Dividend Income 1,972

(To Record dividend received on shares)

Dec 31,

Investments in William Corp Bonds 8,960

(448000*2%) '   

Investments in Saint Inc Bonds 9,520

(3400*2.8)

Investments in Scotia Corp Shares 5,940

(198000*3%)

Increase in Fair value (Income) 12,540

(To record increase/decrease in fair value of investments)