NB Corp. purchased a $100,000 face-value bond of Myers Corp. on August 31, 2013, for $104,490 plus accrued interest. The bond pays interest annually each November 1 at a rate of 9%. On November 1, 2013, NB Corp. received the annual interest. On December 31, 2013, NB's year end, The Globe and Mail newspaper indicated a fair value for these bonds of 103.2. NB sold the bonds on January 15, 2014, for $102,900 plus accrued interest. Assume NB Corp. follows IFRS and does not report interest income separately from gains and losses on these investments.
Instructions
(a) Prepare the journal entries to record the purchase of the bond, the receipt of interest, any adjustments required at year end, and the subsequent sale of the bonds.
(b) How many months were the bonds held by NB Corp. in 2013? Based on this, how much of the income reported on these bonds should be for interest received? Verify that your answer fits with the income that is reported.
(c) How would the accounting and reporting change if NB Corp. applied accounting standards for private enterprises?
(d) If these bonds were acquired to earn a return on excess funds, did the company meet its objective? If yes, how much return did NB Corp. earn while the bonds were held? If not, why not?