Question

Check my wor Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021 1. Ninety of Donald Company's $1,000 bonds. The bonds pay semiannual interest, return principal in 12 years, and include no other cash flows or other features. Feherty plans to hold 30 of the bonds to collect contractual cash flows over the life of the investment and to hold 60, 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 $1,080 per bond, and Feherty sold 30 of the 60 bonds. Feherty also sold 10 of the 30 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 $1,080 as of December 31, 2021 2. $25,400 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 $30,800 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 FVOCI 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

Refer to the below images for the above mentioned questions, in a detailed way of solution with explanation.

entot when Indicate how it a cajuived Feherty would account for its the Donald bonds and watson investments Stock. Requiremen Answer/ The Donald Company bonds include only interest is prinupal, so Feherty's business purpose is relevant for the purpose of classification is reporting. Thirsty (30) bonds are to be held to collect contractual cash flows over the life of the debr, so they would be accounted for at amortigen cost. The ost The remaining Vemaining bonds bonds accounted would be for at fair value through other comprehensive income a 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 af (Fuoce) because that is what teherty elected Feherte can make that irrevocable election, but otherwise, because it does not quality for the equity merrod, would account for the watson equity investment as fupL. n calculation gains and income and of the effect of realized and unrealized losses on feherty's net income other comprehensive comprehensive income for year ended Dec 31, 2001: Requirement cost that @ any were Donald bonds purchased is accounted held at for at amortized year end: Feherty sold 10 bonds of 30 bonds it had planned to hold to collect contractual cash flows over the life of the investorent. . 20 bonds (30-10) are accounted for at amortized Cost and were not sold. No unreotzed gain (on) loss would be recognised in other comprehensive income (oci) (or) net income.

Effect : to 40 so in in in net income other comprehensive income comprehen live income ③. any were for at amortiged Donald bonds purchased and cost that accounted solde - - Teherry solds to bonds of 3o bonds. 10 bonds of the amortised cast bonds were sold at a price of $ 10 Bo per bond gieding a realized gain on sale of not($ 1080 - $4000) = $ 800 Effect : & Boo in net income 90 in other comprehensive $800 in comprehensive income income -- - o Evoce that were any Donald bonds purchased and held accounted at for at end : year - Feherty holds so bonds to collect contractual cash Hows but also to sell them it their price appreciates Sufficiently Feherry sold 30 bonds at the 60 bonds. - 30 bonds (60-30) are accounted for at Frock and were not sold. → unrealized gains of 30x ($ 10do -& 1000) = $2400 Effect: soin net income $2400 in other comprehensive income $2400 in comprehensive income

@ any Donald bonds accounted for at Fvoce that were purchased ę sold: * 30 bonds of Evoce were sold at a price of $ pobo per bond yielding a realized gain on sale of 3ot [$ 1080 - 1000] = $2400 Effect: $2400 in net income. $ 0 in other comprehensive income $2400 in comprehensive income. - - @ The Watson Stock Ignore interest revenues y taxes. The Watson Company common Stock investment is accounted for at EVOCE . Unrealized gain of $5400 [4 30800-$254] Effect : $0 in net income. $5400 in other comprehensive income $5400 in comprehensive income.

Summary of Effects : 0 Net income a Realized gain on lo bonds Realized gain on 30 bonds sold sold that were amortized at that were at Froci $ 800 $2400 3200 ② other comprehensive income (ocI): unrealized gain on 30 bonds retained that are at Unreatized gain on Watson equity accounted for at Fuoci Frock $2400 & 5400 $7800 ② comprehensive income : = net income & Other = $ 3200+ $7800 Comprehensive income = $ 1000