QUESTIONPart A) On January 1, 2023 its issue date, Diogenes Inc. purchased a 9%, $200,000, 10-year bond. Interest is paid annuallyon December 31. Diogenes uses the amortized cost model and the effective interest method for amortizing premium ordiscount. The current market rate was 10% and as a result Diogenes paid $187,711 for the bonds. On December 31, 2023,the bonds have a market value of $185,000. Diogenes applies IFRS.InstructionsRecord the receipt of interest for 2023.Part B)Zeus Corporation is considering making a significant long-term investment in Ares Ltd., a young and very promisingcompany. Zeus decides to make a smaller investment first, and if Ares turns out to be successful, Zeus intends to make anadditional investment to reach significant influence. Ares has 110,000 shares outstanding. On January 1, 2023, Ares issuesZeus 10,000 shares for $400,000 in cash (so now there are 120,000 shares outstanding).Additional information:1. On November 1, 2023, Ares declares a total cash dividend of $180,000.2. Ares reports $225,000 net income for 2023. Its stock price on December 31, 2023 is $38.3. On November 1, 2024, Ares announces a total dividend of $270,000 to be paid on January 2, 2025.4. Ares reports $360,000 net income for 2024. Its stock price on December 31, 2024 is $44.5. On March 15, 2025, Zeus is approached by an investment fund which offers to buy all its Ares shares for $55 per share,a 25% premium over the current stock price of $44. Zeus accepts the offer and sells the shares on that day.InstructionsAssuming Zeus uses the fair value through Other Comprehensive Income model (FV-OCI) to account for this investment:a) Prepare the journal entries in Zeus' books for the 2023 calendar year.b) Prepare the journal entries in Zeus' books for the 2024 calendar year.c) Prepare the journal entries in Zeus' books for the 2025 calendar year.Now assume Zeus uses the fair value through net income model (FV-NI) to account for this investment:a) Prepare the journal entries in Zeus' books for the 2023 calendar year.b) Prepare the journal entries in Zeus' books for the 2024 calendar year.c) Prepare the journal entries in Zeus' books for the 2025 calendar year.

The International Financial Reporting Standards (IFRS) comprise a collection of accounting…

Answered: QUESTION Part A) On January 1, 2023 its…

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 5P

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Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any adjusting entries for the end of the fiscal year, December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. Assume the company retires the bonds on June 30, 2020, at 103 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight-line method of amortization b. effective interest method of amortization
On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
Held-to-Maturity Securities and Amortization of a Discount On January 1, 2019, Kelly Corporation acquired bonds with a face value of 500,000 for 483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2022, and are being held to maturity Required: Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the: 1. straight-line method of amortization 2. effective interest method of amortization
Refer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest. On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-years bonds with a face value of 12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to record the purchase of these available-for-sale securities.

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