Question

Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2018:

Fifty of Donald Company’s $1,000 bonds. The bonds pay semiannual interest, return principal in eight years, and include no other cash flows or other features. Feherty plans to hold 10 of the bonds to collect contractual cash flows over the life of the investment and to hold 40,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 $1,040 per bond, and Feherty sold 10 of the 40 bonds. Feherty also sold 5 of the 10 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 $1,040 as of December 31, 2018.

$25,000 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 $30,000 as of December 31, 2018.

Required:
1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock.
2. Calculate the effect of realized and unrealized gains and losses associated with the Donald bonds and the Watson stock on Feherty’s net income, other comprehensive income, and comprehensive income for the year ended December 31, 2018. Ignore interest revenue and taxes.

6 Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following Investments during December 2018: 1. Fifty of Donald Company's $1,000 bonds. The bonds pay semiannusl interest, return principal in eight years, and include no other cash flows or other features. Feherty plans to hold 10 of the bonds to collect contractual cash flows over the life of the investment and to hold 40,both to collect contractual cash flows but also to sell them it their price appreclates sufficlently. Subsequent to Feherty's purchase of the bonds, but prior to December 31 the fair value of the bonds increased to $1.040 per bond. and Feherty sold 10 of the 40 bonds. Feherty slso sold S of the 10 bonds it had planned to hold to collect contractual cash flows over the life of the invesiment. The fair value of the bonds remained at $1,040 as of December 31, 2018. points 2. $25,000 of Watson Company common stock. Feherty does not have the ability to significantly influence the operations of Watson Feherty clected to account for this equity investment at foir value through OCI (FVOCI). Subsequent to Feherty's purchase of the stock, the fair value of the stock investment incressed to $30,000 as of December 31, 2018 . Indicate how Feherty would account for its investments when it acquired the Donsld bonds and Watson stock 2. Calculate the effect of realized and unrealized gains and losses assoclated with the Donald bonds and the Watson stock on Feherty's net income. other comprehensive income, and comprehensive income for the year ended December 31, 2018 Ignore interest revenue and taxes Complete this question by entering your answers in the tabs below. Required 1Required 2 Calculste the effect of reelized and unrealized geins and loss Feherty's net income, other comprehensive income. and com Ignore interest revenue and taxes. (Loss amounts should be Required 1 Required 2 Indicate how Feherty would eccount for its investments when it ecquired the Donald bonds and Wetson stock. The Donaid Company 10 bonds hald to co lect contraccual can fow The Donad Company 40 bonds held for trading purpcses The Wstson Company stock wouid be accounted for Other comprehensive income (oC) Total effect on cther comprehersive income Comprehensive income

Answer 1

1.

	Feherty, Inc
			$
	Acquired the Donald bonds
Dec-16	Purchase cost of Donald Bonds= 50*1000		50000
	The Investments in 10 number of Bonds is held to maturity securities as   Feherty plans to hold 10 of the bonds to collect contractual cash flows over the life of the investment
	Held to maturity securities =10 x $1000		10000
	The Investments in 40 number of Donald bonds is Available for sale securities as   Feherty plans both to collect contractual cash flows but also to sell them if their price appreciates sufficiently
	Available for sale securities=40 x $1000		40000
	Investment in Watson stock.
Dec-16	Purchase cost of Watson stock		25,000
	The Investments in Watson stock is Available for sale securities as Feherty elected to account for this equity investment at fair value through OCI (FVOCI)
	Available for sale securities=		25000

2.

I	Investment in Donald bonds
	Total number of Bonds purchased	50
	Number of Bonds sold=10+5	15
	Purchase cost of each bond		1,000
	fair value of Watson Bond		1,040
	Realized gain in Investments=15 x $1040-1000		600
a	Available for sale securities=
	Realized gain in Investments=10 x $1040-1000		400
	Realized Gains in investments of Bonds $400 will be reported as Net Income and Comprehensive Income for year 2018
	Unrealized gain on Investments= 30 x $1040-1000		1200
	As investment in 40 numbers of Donald Bonds is treated as available for
	securities the increase in fair value over cost for 41,200 will be treated as
	Unrealized gains on the Investments and reported in Other comprehensive
	income in Stock holders' Equity section
	Other comprehensive Income will not be reported in Income statement
	Held to maturity securities
	Realized gain in Investments=5 x $1040-1000		200
	Realized Gains in investments of Bonds $200 will be reported as Net Income and Comprehensive Income for year 2018
II	Investment in Watson stock.
	Purchase cost of Watson stock		25,000
Dec 31,2016	fair value of Watson stock		30,000
	Unrealized gain in Investments		5000
	As investment in Watson stock is treated as available for securities
	the increase in fair value over cost will be treated as Unrealized
	gains on the Investments and reported in Other comprehensive
	income in Stock holders' Equity section
	Other comprehensive Income will not be reported in Income statement