Accounting for debt and equity investments
• LO12-1, LO12-4, LO12-5, LO12-9
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 semiannual interest, return principal in eight years, and include no other
2. $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.
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