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Entity A is a furniture manufacturer in Hong Kong which commenced its business more than forty years. On 1 January 2017, Entity A bought a

Entity A is a furniture manufacturer in Hong Kong which commenced its business more than forty years.

On 1 January 2017, Entity A bought a 5.25% bond by $2,800,000. The bond price was $3,367,272 and the transaction cost was $12,520 respectively. Entity A paid the amounts to the issuer by a bank cheque. Fixed interest is received in arrears. The bond will be redeemed at a 30% premium on 31 December 2019. The bond is expected to hold to maturity. The fair value option was not adopted at the initial recognition.

The effective interest rate is 6.75%. The market environment is assumed credit risk-free.

On 31 Dec 2018, due to the cash shortage, Entity A did not prefer to hold the bond until maturity and only preferred to short sell it as soon as possible.

On 15 May 2019, Entity A decided to sell the bond to an independent third party for $3,300,000 and the contract was arranged to be signed on 31 July 2019. However, the buyer did not appear to sign the contract on that day.

Entity A was continuously seeking other buyers. Eventually, Entity A could not successfully sell the bond to others until the maturity date.

The fair values of the bond were as follows:

  • 31 December 2017 $3,520,000
  • 31 December 2018 $3,425,000
  • 1 January 2019 $3,155,000
  • 15 May 2019 $3,250,000
  • 31 July 2019 $3,365,000
  • 31 December 2019 $3,256,000

The end of the reporting period is 31 December.

REQUIRED:

Provide journal entries for Entity A from 1 January 2017 to 31 December 2019 in accordance with relevant accounting standards.

ACCOUNTS FOR INPUT:

| Financial asset (Amortised Cost) | Financial asset (FVTPL) | Financial asset (FVTOCI) |

| Financial liability | Equity instrument | Transaction cost | Bank | Loss allowance | Impairment loss | Reversal of impairment loss |

| Gain on remeasurement (P/L) | Loss on remeasurement (P/L) | Gain on remeasurement (OCI) | Loss on remeasurement (OCI) |

| Payable | Receivable | Other income | Other expense | Reclassification (P/L) | Reclassification (OCI) |

| Interest expense | Interest revenue | Loss on disposal | Gain on disposal | Retained earnings | No entry |

ANSWERS:

Journal Entries:

DateAccount NameDebit ($)Credit ($)Hints For Sequence
1-Jan-17-
-
31-Dec-17-
Judge Dr/Cr. Only Enter Amount.
Not an Asset.
31-Dec-18-
Judge Dr/Cr. Only Enter Amount.
Not an Asset.
31-Dec-18-
-
31-Dec-18-
-
1-Jan-19-
-
1-Jan-19-
-
15-May-19-
-
31-Jul-19-
-
31-Dec-19-
-
31-Dec-19-
-
31-Dec-19-
Not an Asset. Judge Dr/Cr. Only Enter Amount.
Judge Dr/Cr. Only Enter Amount.

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