80.2K

Verified Solution

Link Copied!

On January 1, 2021, INVESTCO purchased the following investments:

Investment 1: 1000 x $1,000 face value bonds that pay interest at 7%. The market yield for bonds of equivalent risk and maturity was 5%.Interest is payable annually on December 31. The bond matures on December 31, 2026.

Investment 2:

3000 shares in PUBCO (which has 1,000,000 shares issued and outstanding) were purchased for $9,000.

PUBCO paid out dividends of $5 per share on July 1, 2021

1000 shares were sold on October 31 for $2.85 per share

On December 31, 2021 PUBCOs shares were trading at $3.20 per share.

On January 15, 2022 INVESTCO sold all remaining shares in PUBCO for $3.50 per share.

Required for Investment 1:

Assumption: INVESTCO intends to hold the bond to maturity and collect the contractual cashflow of principal and interest.

1. How much did INVESTCO pay for the bonds (on January 1, 2021)?

2. Provide all required journal entries related to the investment for Fiscal 2021 and 2022.

3. What will the carrying value of the bonds be on December 31, 2026 (immediately before it matures)

Required for Investment 2:

Assumption 1: Explain how the investment in PUBCO should be accounted for assuming INVESTCO does not make an irrevocable election as FVOCI. (Hint you only need to provide the accounting treatment/method not details on how to perform the accounting)

1. Prepare all required journal entries related to the investment from for Fiscal 2021 and 2022

Assumption 2: Explain how the investment in PUBCO should be accounted for assuming INVESTCO does make an irrevocable election as FVOCI. (Hint you only need to provide the accounting treatment/method not details on how to perform the accounting)

1. Prepare all required journal entries related to the investment from for Fiscal 2021 and 2022

Answer & Explanation Solved by verified expert

See Answer