A company was formed on January 1, 2019. An analysis of the ‘Investments’ account as at December 31, 2020 is as follows:

Dec 31, 2019 Opening balance $1,695,961

Feb 28, 2020 Sale of Neon Inc shares (net of $4,000 of brokerage fees) ($400,000)

April 30, 2020 Sale of Lithium Inc shares (net of $1,100 of brokerage fees). ($110,000)

August 1, 2020-

Purchase of Krypton Co. shares (net of $2,900 brokerage fees)

(it has been determined these shares will be classified as FVTOCI.) $290,000

December 31, 2020 Ending balance $1,475,961

The opening balance of the Investments account for the company on January 1, 2020 was made up of the following:

Carbon Corp bonds (Amortised Cost) $185,961

Argon Corp bonds (FVTOCI) $365,000

Neon Inc shares (FVTOCI) – [original cost of $420,000] $370,000

Lithium Inc shares (FVTPL) – [original cost of $75,000] $90,000

Cobalt Corp shares (FVTOCI) – [original cost of $300,000] $360,000

Titanium Inc. shares (FVTOCI) – [original cost of $150,000] $180,000

Zinc Inc shares (FVTPL) – [original cost of $170,000] $145,000

total- $1,695,961

The Carbon Corp bonds were purchased on June 30, 2019 for $184,428. The bonds mature on December 31, 2023, have a face value of $200,000 and a coupon rate of 4%. The coupon payments are made on June 30 and December 31, of every year. The coupon payments received in 2020 were credited to revenue.

The Argon Corp bonds were purchased on January 2, 2019 for $348,294. The bonds mature on December 31, 2022, have a face value of $400,000 and a coupon rate of 6%. The coupon payments are made on June 30 and December 31 of every year. The coupon payments received in 2020 were credited to revenue.

Fair values at December 31, 2020 are as follows:

Carbon Corp $188,000

Argon Corp $355,000

Cobalt Corp $350,000

Krypton Co $273,000

Titanium Inc. $168,000

Zinc Inc. $165,000

The unadjusted trial balance as at December 31, 2020 show a credit balance of $45,657 in the A*OCI Revaluation Gain on FVTOCI Investments account.

Required:

A) The client would like to create separate accounts for FVTPL, FVTOCI and Amortized Cost Investments (i.e. three accounts instead of the one current “investments” account). This will allow the tracking to be done more efficiently in the future. Prepare the necessary adjusting journal entries at December 31, 2020 to account for this change as well as to record the year end adjustments for all three financial instrument accounts (hint: this includes adjusting for any transactions in the year).

B) Calculate the adjusted ending balance in the A*OCI – Revaluation Gain on FVTOCI Investments account as at December 31, 2020 (hint: use a t-account to keep the debit and credits organized)

Answer rating: 100% (QA)

Answer Explanation 1 Amortized cost189854 FVPL11820735 FVOCI145000 Investment13719275 To transfer the components of investment to their appropriate ac... View the full answer