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Feherty, Incorporated accounts for its investments under IFRS No. 9 and purchased the following investments during December 2024: 1. Seventy of Donald Company's $1,000 bonds.
Feherty, Incorporated accounts for its investments under IFRS No. 9 and purchased the following investments during December 2024:
1. Seventy of Donald Company's $1,000 bonds. The bonds pay semiannual interest, return principal in 8 years, and include no other cash flows or other features. Feherty plans to hold 10 of the bonds to collect contractual cash flows over the life of the investment and to hold 60, both to collect contractual cash flows but also to sell them if their price appreciates sufficiently. Subsequent to Feherty's purchase of the bonds, but prior to December 31, the fair value of the bonds increased to $1,060 per bond, and Feherty sold 10 of the 60 bonds. Feherty also sold 8 of the 10 bonds it had planned to hold to collect contractual cash flows over the life of the investment. The fair value of the bonds remained at $1,060 as of December 31, 2024.
2. $25,200 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 $30,400 as of December 31, 2024.
Required:
1. Indicate how Feherty would account for its investments when it acquired the Donald bonds and Watson stock.
2. For each of the following categories of Feherty's investments, calculate the effect of realized and unrealized gains and losses on Feherty's net income, other comprehensive income, and comprehensive income for the year ended December 31, 2024.
(a) any Donald bonds accounted for at amortized cost that were purchased and held at year end,
(b) any Donald bonds accounted for at amortized cost that were purchased and sold,
(c) any Donald bonds accounted for at FVOCI that were purchased and held at year end,
(d) any Donald bonds accounted for at FVOCI that were purchased and sold, and (e) the Watson stock. Ignore interest revenue and taxes.
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