Question

Watney Inc. purchased $11,500 of 8% Hamel bonds at par on July 1, 2016. The bonds pay interest semiannually, and pay only interest and principal. Watney intends to hold the Hamel bonds for purposes of collecting the cash flows provided by interest and principal. During the second half of 2016, an increase in interest rates reduced the fair value of the bonds to $10,200. Watney reports investments under IFRS No. 9. but that Watney intends to sell half of the Hamel bonds within the next year and to hold the other half of the bonds to sell once the price of the bonds appreciates sufficiently.

Prepare the December 31, 2016, journal entry to record Watney’s interest revenue and unrealized gains or losses on the Hamel bonds during 2016. (Do not consider whether an impairment should be recorded.) (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

 



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