1. LA Limited is a manufacturer of high quality entertainment systems. The company has the following transactions during the reporting year ended 31 December 2018: On 1 January 2018, the company bought 10,000 ordinary shares in United Limited for $50,000. The company has the intention to keep these shares as long term investments. As at 31 December 2018, the share price of United Limited was $5.30 per share. On 1 March 2018, the company entered into a futures contract to sell 10 units of S&P/NZX 20 Index futures with a contract settlement date of 1 October 2018. Each unit is valued at $25 per index point. The S&P/NZX 20 Index was 7,000 on 1 March 2018, 7,250 on 1 July 2018 and 6,700 on 1 October 2018. On 1 June 2018, the company issued 50,000 10% preference shares at $1 each. The preference shares are to be redeemed on 1 June 2023. On 1 July 2018, the company purchased ten 4-year corporate bonds issued by Genuine Energy Limited. Each bond has a face value of $200,000 and offered a coupon rate of 10 per cent payable annually. The first payment is due on 31 December 2018. At the time of the purchase, the market requires a rate of return of 6 per cent on such bonds. On 1 August 2018, the company entered into a non-cancellable contract to buy 5,000 units of electronic parts from a U.S. supplier with delivery expected on 1 October 2018. The total price of the contract is U.S. $1,000,000 and full payment is to be made one month after delivery. On the same day, the company entered into a forward foreign exchange contract to receive US$1,000,000 from a foreign currency broker on 1 November 2018. The company has classified this forward foreign exchange contract as a cash flow hedge. The company has satisfied all the requirements of a cash flow hedge. The spot rates and forward rates are provided in the table below: Date Spot rate Forward rate 1 August 2018 1 October 2018 1 November 2018 NZ$1:U.S.$0.70 NZ$1:U.S.$0.66 NZ$1:U.S.$0.60 NZ$1:U.S.$0.65 NZ$1:U.S.$0.63 NZ$1:U.S.$0.60 Required: (a) Explain the appropriate accounting treatment for LA Limited for each of the above independent transaction in accordance with the relevant accounting standards. Justify your answers and show any calculations. (b) Provide the journal entries to account for each of the above independent transaction in the books of LA Limited for the year ended 31 December 2018. Journal narrations are required. 1. LA Limited is a manufacturer of high quality entertainment systems. The company has the following transactions during the reporting year ended 31 December 2018: On 1 January 2018, the company bought 10,000 ordinary shares in United Limited for $50,000. The company has the intention to keep these shares as long term investments. As at 31 December 2018, the share price of United Limited was $5.30 per share. On 1 March 2018, the company entered into a futures contract to sell 10 units of S&P/NZX 20 Index futures with a contract settlement date of 1 October 2018. Each unit is valued at $25 per index point. The S&P/NZX 20 Index was 7,000 on 1 March 2018, 7,250 on 1 July 2018 and 6,700 on 1 October 2018. On 1 June 2018, the company issued 50,000 10% preference shares at $1 each. The preference shares are to be redeemed on 1 June 2023. On 1 July 2018, the company purchased ten 4-year corporate bonds issued by Genuine Energy Limited. Each bond has a face value of $200,000 and offered a coupon rate of 10 per cent payable annually. The first payment is due on 31 December 2018. At the time of the purchase, the market requires a rate of return of 6 per cent on such bonds. On 1 August 2018, the company entered into a non-cancellable contract to buy 5,000 units of electronic parts from a U.S. supplier with delivery expected on 1 October 2018. The total price of the contract is U.S. $1,000,000 and full payment is to be made one month after delivery. On the same day, the company entered into a forward foreign exchange contract to receive US$1,000,000 from a foreign currency broker on 1 November 2018. The company has classified this forward foreign exchange contract as a cash flow hedge. The company has satisfied all the requirements of a cash flow hedge. The spot rates and forward rates are provided in the table below: Date Spot rate Forward rate 1 August 2018 1 October 2018 1 November 2018 NZ$1:U.S.$0.70 NZ$1:U.S.$0.66 NZ$1:U.S.$0.60 NZ$1:U.S.$0.65 NZ$1:U.S.$0.63 NZ$1:U.S.$0.60 Required: (a) Explain the appropriate accounting treatment for LA Limited for each of the above independent transaction in accordance with the relevant accounting standards. Justify your answers and show any calculations. (b) Provide the journal entries to account for each of the above independent transaction in the books of LA Limited for the year ended 31 December 2018. Journal narrations are required
