Homework SourseThe following amortization schedule is for Monty Ltds invest
The following amortization schedule is for Monty Ltd.’s investment in Spangler Corp.’s $77,500, five-year bonds with a 8% interest rate and a 6% yield, which were purchased on December 31, 2016, for $84,029:
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year end:
Assume that Monty Ltd. follows IFRS 9 and reports interest income separately from other investment income, except for trading investments accounted for at FV-NI.
1. Prepare the journal entry to record the purchase of these bonds on December 31, 2016, assuming the bonds are accounted for using the amortized cost model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts.)
2. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
3. Prepare the journal entry related to the bonds accounted for using the amortized cost model for 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
4. Prepare the journal entry to record the purchase of these bonds, assuming they are held for trading purposes and accounted for using the FV-NI model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
5. Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
6. Prepare the journal entry(ies) related to the trading bonds accounted for using the FV-NI model for 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
| Cash Received | Interest Income | Bond Premium Amortized | Amortized Cost of Bonds | |||||||||
| Dec. 31, 2016 | $84,029 | |||||||||||
| Dec. 31, 2017 | $6,200 | $5,042 | $1,158 | 82,871 | ||||||||
| Dec. 31, 2018 | 6,200 | 4,972 | 1,228 | 81,643 | ||||||||
| Dec. 31, 2019 | 6,200 | 4,899 | 1,301 | 80,342 | ||||||||
| Dec. 31, 2020 | 6,200 | 4,821 | 1,379 | 78,963 | ||||||||
| Dec. 31, 2021 | 6,200 | 4,738 | 1,463 | 77,500 |
Solution
HTM- Held to Maturity ; AFS - Available for Sale
Debit Credit
1. Debt Investment A/c(HTM) $84,029
To Cash A/c $84,029
Year 2017
2. Cash A/c $ 6,000
To Interest Revenue $ 5,042
To Debt Investment(HTM) $ 1,158
Year 2019
3. Cash A/c $ 6,000
To Interest Revenue $ 4,899
To Debt Investment (HTM) $ 1,301
4. Debt Investment A/c (AFS) $84,029
To Cash $84,029
Year 2017
5. Interest Receivable A/c $ 5,042
To Interest $ 5,042
Interest A/c $ 5,042
To FVTNI(FVTPL) A/C $ 5,042
Fairvalue gain/ Loss A/c $ 581
To Debt Investment $ 581
FVTNI(FVTPL) A/C $ 581
To Fairvalue gain/ Loss A/c $ 581
Year 2019
6. Interest Receivable A/c $ 4,899
To Interest $ 4,899
Interest A/c $ 4,899
To FVTNI(FVTPL) A/C $ 4,899
Debt Investment A/c $ 1,921
To Fair value gain/loss $ 1,921
Fair value gain/loss $ 1,921
To FVTNI(FVTPL) A/C $1,921
