Question

Sheffield Company, a public company following IFRS purchased $90,000,4% five-year bonds of IAA Corporation on January 1, 2021. Interest is payable on July 1 and January 1. The bond is selling at a $94,150 resulting in a bond premium of $4,150. The effective interest rate is 3%. At the year-end of December 31, the fair value of the investment was $92,100. Prepare the appropriate journal entries for the year ending December 31, 2021 assuming that Sheffield Company uses FV-OCI. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round answers to 0 decimal palces, e.g. 5,125.) Date Account Titles and Explanation Debit Credit (Purchase the bond) (Receipt of interest) (Accrue interest and amortization (effective interest method) at year end) (Remeasurement to fair value at year end)

Answer 1

Answer
Journal Entries - Sheffield Company
Date	Particulars	Debit	Credit
01-Jan-21	Investment in Bond Dr	$      94,150
	To Cash		$      94,150
	(Being investment in bond recorded)
01-Jul	Cash Dr	$        1,800
	To Interest revenue ($94150*1.50%)		$        1,412
	To Investment in bond		$           388
	(To record interest revenue)
31-Dec	Interest receivables Dr	$        1,800
	To Interest revenue [($94150 - $388)*1.50%]		$        1,406
	To Investment in bond		$           394
	(To record interest revenue)
31-Dec	Unrealized holding gain or loss - OCI Dr	$        1,268
	To Fair value adjustment ($93368 - $92100)		$        1,268
	(To record adjustment to fair value)