a. On January 1, 20X1, Stella Entity purchases bonds issued by Gragas Entity for $900,000. Stella Entity will receive an annual coupon payment of $75,000 and an additional $1,000,000 when the bond expires. On January 1, 20X3, Stella Entity is short on cash and needs to purchase new equipment to replace equipment that was destroyed in a factory fire. Stella Entity agrees with Cash Entity to sell all of its rights to future payments on the bond for $875,000. The value of the bond on the statement of financial position on January 1, 20X3 is $934,320. Provide the journal entries to reflect the purchase and eventual derecognition of the bonds.

b. On April 1, 20X1, Peanut Company purchased a call option for 10,000 shares of Sax Company that expires on October 1, 20X1. On the date that Peanut Company purchases the option, the strike price is $25. Additionally, the option is purchased for $10,000. On April 2, 20X1, the price per share of Sax Company stock is $23.75. The price remains at $23.75 through the date of the expiration of the call option. Prepare the journal entries to record the initial acquisition of the option and the expiration of the option 6 months later.  

Answer rating: 100% (QA)

A Journal entry to record the purchase of Bond as on January 1 20X1 by Stella Entity Journal Debit C... View the full answer