Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021: Two hundred 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 80 of the bonds to collect contractual cash flows over the life of the investment and to hold 120, 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 $1,030 per bond, and Feherty sold 80 of the 120 bonds. Feherty also sold 20 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 $1,030 as of December 31, 2021. $26,500 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 $33,000 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.

Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021: Two hundred 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 80 of the bonds to collect contractual cash flows over the life of the investment and to hold 120, 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 $1,030 per bond, and Feherty sold 80 of the 120 bonds. Feherty also sold 20 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 $1,030 as of December 31, 2021. $26,500 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 $33,000 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 8C: On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated...

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Feherty, Inc., accounts for its investments under IFRS No. 9 and purchased the following investments during December 2021:

Two hundred 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 80 of the bonds to collect contractual cash flows over the life of the investment and to hold 120, 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 $1,030 per bond, and Feherty sold 80 of the 120 bonds. Feherty also sold 20 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 $1,030 as of December 31, 2021.
$26,500 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 $33,000 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.

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