Question

Exercise 9-20

On January 1, 2018, Bramble Ltd. paid $387,293.66 for 12% bonds of Variation Ltd. with a maturity value of $360,000. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2018, mature on January 1, 2024, and pay interest each December 31. Bramble acquired the bond investment as part of its portfolio of trading securities and it accounts for the bonds at FV-NI, following IFRS. At December 31, 2018, Bramble’s year end, the bonds had a fair value of $384,800.00.

During 2019, the economic outlook related to Variation Ltd.’s primary business took a major downturn, so that Variation’s debt was downgraded. By the end of 2019, the bonds were priced at 85.5, and at December 31, 2020, they were selling in the market at 87. Conditions reversed in 2021 and the outlook for Variation Ltd. significantly improved, leaving its bonds with a fair value of 99.5 at December 31, 2021.

Prepare a bond amortization table for the four-year period ending December 31, 2021. (Round answers to 2 decimal places, e.g. 52.75.) Cash Received Bond Amortization Table Interest Premium Income Amortization Carrying Amount of Bonds Date 01/01/18 12/31/18 12/31/19 12/31/20 12/31/21 LINK 10 TEXT LINK TO TUXI LINK TO TEXT Identify the impairment loss model applied in the above situation. LINK TO TEXT LINK TO TEXT LINK TO TEXT Prepare the entries to record Bramble's purchase of the bonds on January 1, 2018, the recognition of interest income and interest received on December 31, 2018, and the fair value adjustment required at December 31, 2018. indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 2 decimal places, e.g. 52.75.) Date Account Titles and Explanation Debit Credit Jan 1, 2018 Dec. 31, 2018 (To record collection of interest) 11 (To record fair value adjustment)

Answer 1

(b) Journal Entries Dale 2018 Account and titles Debit Credit 1 Jan Debt Investment To Cash 387,293.66 387,293.66 31. Dea Cash 1943,200 To Debt Investment Interest rwenue 4,470-63 38,729.37 To 31. Dec . 1976.97 Fate value adjustment unerealized holding gain or loss income (.384,800 - $382,823.03) - 1976-91 1976-97 2019 31 Dec Cash 43,200 Du. Debt Investment Interest Menu 4,9 17.70 38,282.30 } XX 31 Dec fair value adjustment To unsrealized holding Xx gain or loss -Income 377.905: 3.1)

Page حم 31 Dec طه عه43 " Debt Investment .نگ که ام لطولو 31 Dec حمصلحنامملمعلا holding unucalized gain { t صممت بأكمله لوگ کا 12 31 Dec pe. م22 Debt Investment Interest ا. مگتی دی. 321 - 31 Dec المصطبلهم ومنلملمطلمعلموماعم XX to uecond fair gain or low-income second fair value Adjustment) ( داگی کی 3

Bond Amortization Table Date Interest Cash Received Premium Amortization Income Carrying Amt al Bond $ 387, 293-66 12/31/18 $ 43,200 38,729.37 4470.63 $ 382,8 23:03 12/31/14 $43,200 $38282.30 4917.70 $377905-33 12/31/20 $43,200. $37790053 5409.47 $ 372,495-86 12/01/21 $ 43,200 $ 37249.59 5950.41 $ 3 66545-45 Cash Recei ved $ 360,000 x 120). 43200 Interest ulvenue 10% X Previous Carrying Amt. Premium amortized Cash received Interest revenue,