Question

Question 2
Dogfish Limited is a company incorporated in Hong Kong. Its finan cial
year end is 31 December. On 1 January 2017, Dogfish Limited
purchased 5,000 shares issued by Frogfish Limited for trading purposes.
To raise funds for the purchase of shares issued by Frogfish Limi ted,
Dogfish Limited issued corporate bonds with the principal value of
$1,000,000 and a term of five years on 1 January 2017.
On 1 January 2017, the selling price of a share of Frogfish Limi ted
was $200. The transaction cost incurred was $300. The share price of
Frogfish Limited decreased to $190 on 31 December 2017. Dogfish
Limited sold all the shares of Frogfish Limited on 1 March 2018 when
the share price was $250.
The annual interest rate paid by Dogfish Limited for the corpora te bond
was 8%. The interest would be payable once a year on 31 December

and the principal would be payable on 31 December 2021. The market
interest rate for similar bond in the market was 10% per annum.

Required:
a ）With reference to relevant financial reporting and accounting
standards, determine the nature of the shares purchased by Dogfish
Limited from the perspective of Frogfish Limited.

b ）Prepare the journal entries (without narratives) relating to the
purchase of shares issued by Frogfish Limited in the books of
Dogfish Limited for the years ended 31 December 2017 and 31
December 2018.

c ）Prepare the journal entries (without narratives) relating to the issue
of corporate bonds by Dogfish Limited for the years ended 31
December 2017 and 31 December 2018.

Answer 1

a) The purchase of the shares of Frogfish Ltd. By the Dogfish Ltd. Is a trading transaction for short term investment purpose.
b) Journal Entries in the books of Dogfish Ltd.:
Date	Accounts Titles	Debit $	Credit $
Jan 1 2017	Investment for sale-Frogfish	1000000
	Cash		1000000
Dec 31 2017	Unrealised loss	50000
	Investment for sale-Frogfish		50000
Mar 1 2018	Cash	1250000
	Investment for sale-Frogfish		950000
	Unrealised loss		50000
	Income on sale of Investment		250000
c) Journal Entries in the books of Dogfish Ltd.:
Date	Accounts Titles	Debit $	Credit $
Jan 1 2017	Cash	1000000
	Bond payable		1000000
Dec 31 2017	Interest expense	80000
	Cash		80000
Dec 31 2018	Interest expense	80000
	Cash		80000