Finn plc (Finn) entered into the following transaction during the year ended 31

December 2016:

Finn purchased 2 million 1 4% bonds on the 1 January 2016 at a discount of 10%.

Transaction costs incurred by Finn were 200,000. The bonds will be redeemed at a

20% premium on the 31 December 2019. The effective interest rate is 7.3%.

Required:

Prepare the journal entries for:

Initial recognition of the bond at 1 January 2016;

Recognition of interest in 2016; and

Redemption of the investment in 2019.

2.2 Finn also entered into a forward contract on 30/6/16 to purchase $500,000 at

/$0.67 on 31/3/2017. On the 31/12/16, the forward rate is /$0.70 on 31/3/17.

Finns borrowing rate is 5%.

Required:

Determine the fair value of the forward contract on the 31/12/16; and

Prepare the journal entry to record the change in fair value on the 31/12/16

(assuming cash flow hedge accounting).