The following information relates to the 2017 debt and equity investment transactions of Wildcat Ltd., a publicly

Question:

The following information relates to the 2017 debt and equity investment transactions of Wildcat Ltd., a publicly accountable Canadian corporation. All of the investments were acquired for trading purposes and accounted for using the FV-NI model, with all transaction costs being expensed. No investments were held at December 31, 2016, and the company prepares financial statements only annually, each December 31, following IFRS 9. Dividend and interest income are not recorded or reported separately from other investment income accounts.
1. On February 1, the company purchased Williams Corp. 12% bonds, with a par value of $500,000, at 106.5 plus accrued interest to yield 10%. Interest is payable April 1 and October 1.
2. On April 1, semi-annual interest was received on the Williams bonds.
3. On July 1, 9% bonds of Saint Inc. were purchased. These bonds, with a par value of $200,000, were purchased at 101 plus accrued interest to yield 8.5%. Interest dates are June 1 and December 1.
4. On August 12, 3,000 shares of Scotia Corp. were acquired at a cost of $59 per share. A 1% commission was paid.
5. On September 1, Williams Corp. bonds with a par value of $100,000 were sold at 104 plus accrued interest.
6. On September 28, a dividend of $0.50 per share was received on the Scotia Corp. shares.
7. On October 1, semi-annual interest was received on the remaining Williams Corp. bonds.
8. On December 1, semi-annual interest was received on the Saint Inc. bonds.
9. On December 28, a dividend of $0.52 per share was received on the Scotia Corp. shares.
10. On December 31, the following fair values were determined: Williams Corp. bonds 101.75; Saint Inc. bonds 97; and Scotia Corp. shares $60.50.
Instructions
(a) Prepare all 2017 journal entries necessary to properly account for the investment in the Williams Corp. bonds.
(b) Prepare all 2017 journal entries necessary to properly account for the investment in the Saint Inc. bonds.
(c) Prepare all 2017 journal entries necessary to properly account for the investment in the Scotia Corp. shares.
(d) Assume that there were trading investments on hand at December 31, 2016, accounted for using the FV-NI model, and that they consisted of shares with a cost of $400,000 and a fair value of $390,000. These non-dividend-paying shares were sold early in 2017 and their original cost was recovered exactly. What effect would this transaction have on 2017 net income?
(e) Assume that the interest income on the Saint Inc. bonds that were purchased on July 1, 2017, was separately tracked and reported. Prepare the entries that are required on July 1, December 1, and December 31, 2017, to account for this investment.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Intermediate Accounting

ISBN: 978-1119048534

11th Canadian edition Volume 1

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy

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