Entity A is a furniture manufacturer in Hong Kong which commenced its business more than forty years.
Question:
Entity A is a furniture manufacturer in Hong Kong which commenced its business more than forty years.
On 1 January 2017, Entity A bought a 5.25% bond by $2,800,000. The bond price was $3,367,272 and the transaction cost was $12,520 respectively. Entity A paid the amounts to the issuer by a bank cheque. Fixed interest is received in arrears. The bond will be redeemed at a 30% premium on 31 December 2019. The bond is expected to hold to maturity. The fair value option was not adopted at the initial recognition.
The effective interest rate is 6.75%. The market environment is assumed credit risk-free.
On 31 Dec 2018, due to the cash shortage, Entity A did not prefer to hold the bond until maturity and only preferred to short sell it as soon as possible.
On 15 May 2019, Entity A decided to sell the bond to an independent third party for $3,300,000 and the contract was arranged to be signed on 31 July 2019. However, the buyer did not appear to sign the contract on that day.
Entity A was continuously seeking other buyers. Eventually, Entity A could not successfully sell the bond to others until the maturity date.
The fair values of the bond were as follows:
- 31 December 2017 $3,520,000
- 31 December 2018 $3,425,000
- 1 January 2019 $3,155,000
- 15 May 2019 $3,250,000
- 31 July 2019 $3,365,000
- 31 December 2019 $3,256,000
The end of the reporting period is 31 December.
REQUIRED:
Provide journal entries for Entity A from 1 January 2017 to 31 December 2019 in accordance with relevant accounting standards.
ACCOUNTS FOR INPUT:
| Financial asset (Amortised Cost) | Financial asset (FVTPL) | Financial asset (FVTOCI) |
| Financial liability | Equity instrument | Transaction cost | Bank | Loss allowance | Impairment loss | Reversal of impairment loss |
| Gain on remeasurement (P/L) | Loss on remeasurement (P/L) | Gain on remeasurement (OCI) | Loss on remeasurement (OCI) |
| Payable | Receivable | Other income | Other expense | Reclassification (P/L) | Reclassification (OCI) |
| Interest expense | Interest revenue | Loss on disposal | Gain on disposal | Retained earnings | No entry |
ANSWERS:
Journal Entries:
| Date | Account Name | Debit ($) | Credit ($) | Hints For Sequence |
| 1-Jan-17 | - | |||
| - | ||||
| 31-Dec-17 | - | |||
| Judge Dr/Cr. Only Enter Amount. | ||||
| Not an Asset. | ||||
| 31-Dec-18 | - | |||
| Judge Dr/Cr. Only Enter Amount. | ||||
| Not an Asset. | ||||
| 31-Dec-18 | - | |||
| - | ||||
| 31-Dec-18 | - | |||
| - | ||||
| 1-Jan-19 | - | |||
| - | ||||
| 1-Jan-19 | - | |||
| - | ||||
| 15-May-19 | - | |||
| - | ||||
| 31-Jul-19 | - | |||
| - | ||||
| 31-Dec-19 | - | |||
| - | ||||
| 31-Dec-19 | - | |||
| - | ||||
| 31-Dec-19 | - | |||
| Not an Asset. Judge Dr/Cr. Only Enter Amount. | ||||
| Judge Dr/Cr. Only Enter Amount. | ||||
