Question

Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021 1. Two hundred and ten of Donald Company's $1,000 bonds. The bonds pay semiannual interest, return principal in 10 years, and include no other cash flows or other features. Feherty plans to hold 80 of the bonds to collect contractual cash flows over the life o the investment and to hold 130, both to collect contractual cash flows but also to sell them if their price appreciates sufficiently Subsequent to Feherty's purchase of the bonds, but prior to December 31, the fair value of the bonds increased to $1,010 per bond, and Feherty sold 80 of the 130 bonds. Feherty also sold 40 of the 80 bonds it had planned to hold to collect contractual cash flows over the life of the investment. The fair value of the bonds remained at $1010 as of December 31, 2021 2. $26,600 of Watson Company common stock, Feherty does not have the ability to significantly influence the operations of Watson Feherty elected to account for this equity investment at fair value through OCI (FVOCI). Subsequent to Feherty's purchase of the stock, the fair value of the stock investment increased to $33,200 as of December 31, 2021 Required: 1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock 2. For each of the following categories of Feherty's investments, calculate the effect of realized and unrealized gains and losses on Feherty's net income, other comprehensive income, and comprehensive income for the year ended December 31, 2021 (a) any Donald bonds accounted for at amortized cost that were purchased and held at year end, (b) any Donald bonds accounted for at amortized cost that were purchased and sold (c) any Donald bonds accounted for at FVOCl that were purchased and held at year end, (d) any Donald bonds accounted for at FVOCI that were purchased and sold, and (e) the Watson stock. Ignore interest revenue and taxes.

Answer 1

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lento. when Indicate how it acaquired Feherty would account for its the Donald bonds and watson investments Stock- Requiremento. Answer/- The Donald company bands include only interest y principal, so Feherty's business purpose is relevant for the purpose of classification fon is & reporting reporting. Eighty (80) bonds are to be held to collect contractual cash flows over the life of the debt, so they would be accounted for at amortiged cost. The remaining bonds would be accounted for at fair value through other comprehensive income as Teherty is holding those bonds both to collect Contral cash flows and for sale The watson company stock would be accounted for at fair value through ar (Fuoco) because that is what Feherty elected Fcherry can make that irrevocable election, but otherwise because it does not quality for the eajuity metrod, would account for the watson equity investment as FUPL @ : Calculation gains and income and of the effect of losses on feherty's comprehensive income realized and unrealized net income other comprehensive for year ended Dec 31, 2018 Requirement ② to cost that any were Donald bonds purchased Es accounted held at for at amortized year enda Feherty sold 40 bonds of Bo bonds it hold to collect contractual cash flows the investment .. had over planned to the life of :. 40 bonds (8040) are accounted for at amortized Cost and were not sold. : No unreated gain con loss would be recognised in other comprehensive income (ocl) (ar) net income.

Effect to 40 10 in in in net income other comprehensive income comprehen live income for at amortiaed cost that any were Donald bonds purchased and accounted sold. → > Feherry soods 40 bonds of to bonds 40 bonds of the amortised cast bonds were at a price of $1010 per bond yielding a gain on Sale of 404( 8 1000 - 1000) = $400 sold realized Effect : & 400 in net income $0 in other comprehensive income $ 400 in comprehensive income o EVOCT that were any Donald bonds purchased and held accounted at for year at end - Feherty holds 1:30 bonds to collect contractual cash flows but also to sell them it their price appreciates Sufficiently Seherty sold 80 bonds at the 130 bonds. 50 bonds (130-80) are accounted for at Frock and were not sold. unreakzed gains of 50 x (1 1010 - $ 1000) = $500 Effect: so in net income & Soo in other comprehensive income $500 in comprehensive income

@ accounted for at fvoce that were any Donald bonds purchased & sold: of $ 1000 * 8o bonds of Evocê per bond yielding a Box (4 Lolo -41000) were sold realized = $ 800 at gain a on price sale of Effect: $ zou in net $0 in other & Boo in income comprehensive income comprehensive income. ① The Watson Stock Ignore interest revenues es taxes - is accounted & 33200-$26600] The Watson Company Common Stock investment for at EVOCE Onrealized gain of $ 6600 Effect : $0 in net income. 6too in other comprehensive income $ 6600 in comprehensive income. Effects o n - Effects of Net income: Summary Dealized gain on 40 bonds sold that were amortiged at $ 400 Realized gain on to bonds sold that were at EVOLE $800 $1200 @ Other comprehensive income Coci): unrealized unrealized gain gain on 50 bonds retained that are at on watson equity accounted for at EVOCE Frock $500 $6600 4 7100 comprehensive income: = net income tour - 1200 + p 7100 - $8300