Question

The following amortization schedule is for Flagg Ltd.'s investment in Spangler Corp.s $100,000, five-year bonds with a 7% interest rate and a 5% yield, which were purchased on December 31, 2013, for $108,660:
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year end:
Assume that Flagg Ltd. follows IFRS 9 and reports interest income separately from other investment income except for trading investments accounted for at FV-NI.
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31,2013, assuming the bonds are accounted for using the amortized cost model.
(b) Prepare the journal entry(ies) related to the bonds accounted for using the amortized cost model for 2014.
(c) Prepare the journal entry(ies) related to the bonds accounted for using the amortized cost model for 2016.
(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are held for trading purposes
and accounted for using the FV-NI model.
(e) Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2014.
(f) Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2016.
(g) As a member of Flagg's management, suggest a reason why you might have a different policy related to the reporting of interest income (separately versus combined with other investment income) that depends on the accounting measurement method chosen.


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  • CreatedSeptember 18, 2015
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