Question

Survivor Company, a public company, had the following transactions in securities during 2017:

a) Purchased $1,000,000 par value of 5% Diamond Ltd. bonds (when the market interest rate was 4%), on January 1st, 2017 (right after the interest was paid). The bonds will mature on July 1, 2023, and pay interest on July 1st and January 1st. The bonds will be an amortized cost investment.

b) Purchased 100,000 common shares of Midtel Ltd., a publicly-traded company, as an FVTOCI investment on July 1st, 2017. The price per share was $2, plus a $1,500 broker commission.

c) Purchased 500,000 common shares of Moose Ltd., a publicly-traded company, as an FVTPL investment on January 1st, 2017. The price per share was $1.50, plus a $2,000 broker commission.

Please provide entries for all transactions and adjustment related to the investments for 2017. Fair values on December 31st.

Diamond bonds: 104

Midtel Ltd.: $2.00 per share

Moose Ltd: $1.55 per share

Shining Ltd: undeterminable

Treeline Ltd: $1.95 per share

Answer 1

Journal entries as on purchase date:-

A. Debit Investment 1,000,000

Credit Bank 1.000.000

B. For bonds purchased on July 1,2017(FVTOCI):

Debit Investments 201,500(100000*2+1500)

Credit Bank 201,500

C. For bonds purchased on Jan 1,2017(FVTPL):

Debit Investments 750,000(500000*1.5)

Credit Bank 750,000

For Transaction cost

Debit Transaction costs 2000

Credit Bank 2000

Journal entries as on 31st December 2017:-

A.

B. For bonds purchased on July 1,2017(FVTOCI):

Debit OCI 1500

Credit Investment 1500

C. For bonds purchased on Jan 1,2017(FVTPL):

Debit Investment 25000(500000*0.05)

Credit SPL 25000