Question
Farzad Corp. (Farzad), a public company, had the following transactions relating to financial assets during its fiscal year ended December 31, 2020: On January 2,
Farzad Corp. (Farzad), a public company, had the following transactions relating to financial assets during its fiscal year ended December 31, 2020:
- On January 2, 2020, Farzad purchased bonds from Akram Inc. with a face value of
$100,000. The bond matures on December 31, 2032, and pays interest
semi-annually on June 30 and December 31 at 4.6% per annum. NO transaction costs were incurred on this purchase. The bonds were purchased to yield 5%. The bond was classified as amortized cost.
- On January 15, 2020, Farzad purchased 1,500 shares of Elysium Inc. at a price of
$67 per share. The shares were classified as fair value through profit or loss (FVPL).
- On February 2, 2020, Farzad sold all of the 2,000 shares of Benny Ltd. it owned for
$45 per share. These shares were purchased in 2018 at a total price of $72,000. The carrying value of these shares as at December 31, 2019, was $83,000. The shares were classified as fair value through other comprehensive income-elect (FVOCI-elect).
- On June 30, 2020, Farzad received interest on the Akram Inc. bonds.
- On July 15, 2020, Farzad purchased 8,000 common shares of Cardall Corp. for a price of $13 per share, plus total transaction costs of $2,800. The shares were classified as FVOCI-elect.
- On October 12, 2020, Farzad sold all of the 2,200 shares of Long Ltd. it owned for
$86 per share. These shares were purchased in 2018 at a total price of $125,000. The carrying value of the shares at December 31, 2019, was $187,000. The shares were classified as FVPL.
- On December 31, 2020, Farzad received interest on the Akram Inc. bonds. At this time, the Akram Inc. bonds were trading at 105% of the face value.
- At December 31, 2020, the fair values of the Elysium Inc. and Cardall Corp. shares were $52.00 per share and $14.20 per share, respectively.
Required:
- Prepare the journal entries to record all of Farzads investment-related transactions for 2020. (10 marks)
- Prepare the journal entries necessary to account for the fair value changes on Farzads financial assets at December 31, 2020. (2 marks)
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