In: Accounting
Eli Fish Corp. (EFI), a passive investor, owns various investments in debt and equity securities.
EFI’s policy is to prepare journal entries for adjustments and accruals at year end. The company elects to reclassify reserves (accumulated other comprehensive income) to retained earnings upon derecognition of investments in equity securities at FVOCI-elect.
EFI engaged in various investment-related transactions as detailed below. All interest and dividend payments were received on the scheduled payment dates. While the resulting journal entries will all be entered to the nearest dollar, EFI rounds all dollar-based calculations to the nearest whole cent (for example, $50.22) and percentages to four decimal places (for example, 11.9876%). You should do likewise in your supporting calculations.
January 1, 20X1
i) EFI paid $17,500 for 500 common shares of
Zoe Corp. and classified this investment at fair value through
profit or loss (FVPL).
ii) EFI paid $24,700 for 100 preferred shares of
Meeks Inc. and irrevocably classified this investment at fair value
through other comprehensive income (FVOCI-elect). The preferred
shares each pay a dividend of $1.00 ($100 total) annually on June
30.
iii) EFI paid $102,974 for a $100,000, 5.0% coupon
bond issued by Zachary Ltd. that pays interest on June 30 and
December 31 each year. The bond matures on December 31, 20X9. EFI
classified this investment at FVPL.
iv) EFI paid $176,618 for a $200,000, 3.0% coupon
bond issued by Belle Inc. that paysinterest on June 30 and December
31 each year. The bond matures on December 31, 20X7. EFI classified
this investment at fair value through other comprehensive income
(FVOCI).
v) EFI paid $292,189 for a $300,000, 4.0% coupon
bond issued by Canaan Corp. that pays interest on June 30 and
December 31 each year. The bond matures on December 31, 20X6. EFI
classified this investment at amortized cost.
December 31, 20X1
vi) The market values of the investments were
as follows:
Zoe Corp. $17,100
Meeks Inc. $25,200
Zachary Ltd. $101,500
Belle Inc. $183,500
Canaan Corp. $287,600
January 1, 20X2
vii) EFI reclassified its investment in
Zachary’s bonds from FVPL to amortized cost.
viii) EFI reclassified its investments in Belle’s
bonds from FVOCI to amortized cost.
January 2, 20X2
ix) EFI sold some of its investments for the
prices set out below:
Zoe Corp. $17,400
Meeks Inc. $24,600
Canaan Corp. $288,000
Record all journal entries pertaining to the purchase, income recognition, revaluation, reclassification, and derecognition of EFI’s investments. Separate the journal entries into those required in 20X1 and those required up to and including June 30, 20X2.
Ensure that the journal entries are dated and include a brief
description of the pertinent details. Prepare a separate journal
entry for each event and for each investment; supporting
calculations are to be referenced or included in the
description.
Edit: This was all the information that was provided - no further
coupon description or balance sheet
Date |
Particulars. |
Dr. (In $ ) |
Cr. (In $) |
01/01/20X1 (i) |
Purchase of common shares as investment. |
||
Investment in Common Shares in Zoe Corp a/c |
17,500 |
||
To Bank |
17,500 |
||
-Being 500 common shares @ $35 of Zoe Corp. has been purchased as investment. |
|||
(ii) |
Purchase of Preferred shares as investment. |
||
Investment Preferred Share of Meeks Inc. a/c |
24,700 |
||
To Bank |
24,700 |
||
-Being 100 Preferred shares @ $247 of Meeks Inc. has been purchase as investment. |
|||
06/30/20X1 |
Receipt of Preferred dividend. |
||
Bank a/c |
100 |
||
To Preferred dividend |
100 |
||
-Being Preferred dividend received @ $1 per Share. |
|||
(iii) |
Purchase of 5.0% Coupon bond of Zacharv Ltd. |
||
5% Coupon bond of Zacharv Ltd. a/c |
102,974 |
||
To Bank a/c |
102,974 |
||
-Being 5% coupon bond of Zacharv Ltd purchased as investment. |
|||
06/30/20X1 |
Interest received on 5% coupon bond. |
||
Bank a/c ($1,00,000*5%)/2 |
2,500 |
||
To Interest receipt |
2,500 |
||
-Being interest receipt for 1st 6month on face value of bond. |
|||
12/31/20X1 |
Interest received on 5% coupon bond. |
||
Bank a/c ($1,00,000*5%)/2 |
2,500 |
||
To Interest receipt |
2,500 |
||
-Being interest receipt for 2nd 6month on face value of bond. |
|||
(iv) |
Purchase of 3% coupon bond of Belle Inc. |
||
3% Coupon bond of Belle Inc a/c |
1,76,618 |
||
To Bank a/c |
1,76,618 |
||
-Being 3% coupon bond of Belle Inc. purchased as investment. |
|||
06/30/20X1 |
Interest received on 3% bond. |
||
Bank a/c ($2,00,000*3%)/2 |
3,000 |
||
To Interest receipt |
3,000 |
||
-Being interest receipt for 1st 6month on face value of bond. |
|||
12/31/20X1 |
Interest received on 3% bond. |
||
Bank a/c ($2,00,000*3%)/2 |
3,000 |
||
To Interest receipt |
3,000 |
||
-Being interest receipt for 2nd 6month on face value of bond. |
|||
(v) |
Purchase of 4% coupon bond of Canaan Corp. |
||
4% Coupon of Canaan Corp a/c |
2,92,189 |
||
To Bank a/c |
2,92,189 |
||
-Being 4% coupon bond purchased as investment. |
|||
06/30/20X1 |
Interest received on 4% bond. |
||
Bank a/c ($3,00,000*4%)/2 |
6,000 |
||
To Interest received |
6,000 |
||
-Being interest receipt for 1st 6month on face value of bond. |
|||
12/31/20X1 |
Interest received on 4% bond. |
||
Bank a/c ($3,00,000*4%)/2 |
6,000 |
||
To Interest received |
6,000 |
||
-Being interest receipt for 2nd 6month on face value of bond. |
|||