Entity A is listed in Hong Kong. It is a toy manufacturer which commenced its business more
Question:
Entity A is listed in Hong Kong. It is a toy manufacturer which commenced its business more than thirty years.
On 1 July 2018, Entity A bought a $3,500,000 5.25% bond for $3,650,000. It also incurred an issue cost of $2,312. Entity A paid the bond price by a direct bank transfer on the purchase date. The issue cost was settled on 16 July 2018. Fixed interest is received in arrears. The bond will be redeemed at a premium over its face value on 30 June 2021. Entity A may sell the bond if the bond price is attractive or for any other reason determined by the board of directors. The fair value option was not elected at the initial recognition. Entity A may also hold the bond until maturity.
The fair values of the bond were as follows:
- 30 June 2019 $3,980,000
- 30 June 2020 $3,560,000
- 30 November 2020 $3,250,000
- 31 December 2020 $3,350,000
- 30 June 2021 $4,365,400
Due to the cash shortage, on 30 November 2020, the board of directors decided to sell the bond to an independent third party for $3,450,000 and will sign the contract on 31 December 2020. However, the bond buyer did not appear to sign the contract on 31 December 2020.
Finally, Entity A could not find any new buyers and it held the bond until maturity.
The effective interest rate is 8.25%. The market environment is stable and credit risk-free. The end of the reporting period is 30 June.
REQUIRED:
According to relevant accounting standards, prepare journal entries to recognise the transactions of Entity A from 1 July 2018 to 30 June 2021.
ACCOUNTS FOR INPUT:
| Financial asset (Amortised Cost) | Financial asset (FVTPL) | Financial asset (FVTOCI) |
| Financial liability | Equity instrument | Transaction cost | Bank | Loss allowance | Impairment loss |
| Gain on remeasurement (P/L) | Loss on remeasurement (P/L) | Gain on remeasurement (OCI) | Loss on remeasurement (OCI) |
| Payable | Receivable | Other income | Other expense | Reclassification (P/L) | Reclassification (OCI) |
| Interest expense | Interest revenue | Loss on disposal | Gain on disposal | Retained earnings | No entry |
ANSWERS:
Journal Entries:
| Date | Account Name | Debit ($) | Credit ($) | Hints For Sequence |
| 1-Jul-18 | - | |||
| Not an Asset. Judge Dr/Cr. Only Enter Amount. | ||||
| Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
| 16-Jul-18 | - | |||
| - | ||||
| 30-Jun-19 | - | |||
| Not an Income. Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
| 30-Jun-19 | - | |||
| - | ||||
| 30-Jun-20 | - | |||
| Not an Income. Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
| 30-Jun-20 | - | |||
| - | ||||
| 30-Nov-20 | - | |||
| - | ||||
| 31-Dec-20 | - | |||
| - | ||||
| 30-Jun-21 | - | |||
| Not an Income. Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
| 30-Jun-21 | - | |||
| - | ||||
| 30-Jun-21 | - | |||
| Not an Asset. Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
| 30-Jun-21 | - | |||
| Judge Dr/Cr. Only Enter Amount. | ||||
| - | ||||
