Question 6: Amortized Cost and FV-NI Investments in Bonds The following information relates to the...

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Question 6: Amortized Cost and FV-NI Investments in Bonds
The following information relates to the debt investments ofSarasota Inc. during a recent
year:
1.
On February 1, the company purchased Gibbons Corp. 10% bondswith a face value
of $324,000 at 100 plus accrued interest. Interest is payable onApril 1 and October
1.
2. On April 1, semi-annual interest was received on the Gibbonsbonds.
4
3.
On June 15, Sampson Inc. 9% bonds were purchased. The $216,000par-value
bonds were purchased at 100 plus accrued interest. Interestdates are June 1 and
December 1.
4.
On August 31, Gibbons Corp. bonds with a par value of $65,000purchased on
February 1 were sold at 99 plus accrued interest.
5.
On October 1, semi-annual interest was received on the remainingGibbons Corp.
bonds.
6. On December 1, semi-annual interest was received on theSampson Inc. bonds.
7.
On December 31, the fair values of the bonds purchased onFebruary 1 and June 15
were 98.5 and 101, respectively.
Assume the investments are accounted for under the recognitionand measurement
requirements of IFRS 9 Financial Instruments. Assume theinvestments are NOT
adjusted for Present Value.
Required:
Assume instead that Sarasota manages these investments based ontheir yield to
maturity (Amortized Cost) Prepare all journal entries that youconsider necessary,
including December 31 adjusting entries.

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Answer:

Journal entries Including december 31 adjusting entries

Date	particulars	Debit ($)	Credit ($)
Feb 01	Bond investment at amortised cost dr Interest receivable dr ($324000*10%)4/12 To cash	324000 10800	334800
April 01	Cash dr To interest receivable ($324000*10%)6/12	16200	16200
June 15	Bond investment at amortised cost dr Interest receivable dr ($ 2160009%)5/12 To cash	216000 810	216810
August 31	Cash dr ($6500099%) Investment income dr To interest receivable ($6500010%)*5/12 To bond investment at amortised cost	64350 3358	2708 65000
October 01	Cash dr To investment income ($324000-$65000)10%6/12	12950	12950
December 01	Cash dr To interest receivable To investment income ($2160009%)5/12	9720	810 8910
December 31	Interest receivable dr To investment income ($25900010%)3/12+($2160009%)1/12	8095	8095

December 31

Gibbons bonds ($ 259000 *98.5%): $255115

Sampson bonds ($216000*101%): $218160

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Question 6: Amortized Cost and FV-NI Investments in Bonds The following information relates to the debt investments ofSarasota Inc. during a recentyear:1.On February 1, the company purchased Gibbons Corp. 10% bondswith a face valueof $324,000 at 100 plus accrued interest. Interest is payable onApril 1 and October1.2. On April 1, semi-annual interest was received on the Gibbonsbonds.43.On June 15, Sampson Inc. 9% bonds were purchased. The $216,000par-valuebonds were purchased at 100 plus accrued interest. Interestdates are June 1 andDecember 1.4.On August 31, Gibbons Corp. bonds with a par value of $65,000purchased onFebruary 1 were sold at 99 plus accrued interest.5.On October 1, semi-annual interest was received on the remainingGibbons Corp.bonds.6. On December 1, semi-annual interest was received on theSampson Inc. bonds.7.On December 31, the fair values of the bonds purchased onFebruary 1 and June 15were 98.5 and 101, respectively.Assume the investments are accounted for under the recognitionand measurementrequirements of IFRS 9 Financial Instruments. Assume theinvestments are NOTadjusted for Present Value.Required:Assume instead that Sarasota manages these investments based ontheir yield tomaturity (Amortized Cost) Prepare all journal entries that youconsider necessary,including December 31 adjusting entries.