Octavio Corp. prepares financial statements annually on December 31, its fiscal year end. At December 31, 2017,
Question:
Octavio Corp. prepares financial statements annually on December 31, its fiscal year end. At December 31, 2017, the company has the account Investments in its general ledger, containing the following debits for investment purchases, and no credits:
Feb. 1, 2017 Chiang Corp. common shares, no par value, 200 shares .................... $ 37,400
Apr. 1 Government of Canada bonds, 6%, due April 1, 2027, interest payable April 1 and October 1, 100 bonds of $1,000 par value each .............................................. 100,000
July 1 Monet Corp. 12% bonds, par $50,000, dated March 1, 2017, purchased at 108 plus accrued interest to yield 11%, interest payable annually on March 1, due on March 1, 2037 ...................................................................... 56,000
Nov. 1 $60,000, six-month non-interest-bearing note that matures on May 1, 2018, bought to yield 10% ....................................... 57,143
The fair values of the individual securities on December 31, 2017, were:
Chiang Corp. common shares (active stock market price) ................. $ 33,800
Government of Canada bonds ................................................. 105,900
Monet Corp. bonds ............................................................... 55,600
Note receivable ................................................................... 58,350
Instructions
(Round amounts to the nearest dollar.)
(a) Prepare the entries necessary to correct any errors in the Investments account, assuming that the Government of Canada bonds were being managed for their yield to maturity, and that the Monet bonds were acquired with the hope of gaining from falling interest rates. The Chiang Corp. shares were acquired with the hope of ensuring the supply of raw materials from this company in the future. Octavio has adopted the recognition and measurement standards of IFRS 9 and tracks interest income only for investments accounted for at cost/amortized cost.
(b) Prepare the entries required to record any accrued interest, amortization of any premium or discount, and recog- nition of fair values on December 31, 2017.
(c) During 2018, the following transactions took place:
1. The note was sold on February 1, 2018, for $59,600.
2. The Government of Canada bonds were sold on July 1, 2018, for $109,200 plus accrued interest. Prepare entries to record these transactions.
(d) Using the information from parts (a) and (b), assume that the note was not sold on February 1, 2018, but instead was held until it matured. Provide the proper entry to record the disposal of the note at maturity.
(e) Assume that Octavio Corp. is a private entity and applies ASPE. Identify which, if any, of your answers to parts (a) to (d) would change under this assumption. Explain briefly.
(f) Can Octavio management choose which standards to follow, or is it restricted by the type of company it is? Explain.
Financial StatementsFinancial 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... 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,...
Step by Step Answer:
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