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if part (c) and (d) not given in the question. the answer to part (e) for Dec 31, 2019 is as below. Dr. Cash 96,000
if part (c) and (d) not given in the question. the answer to part (e) for Dec 31, 2019 is as below.
On January 1, 2018. Ellison Company purchased 12% bonds, having a maturity value of 800,000, for 860,652. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year. Ellison's business model is to hold these bonds to collect contractual cash flows. Instructions (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare a bond amortization schedule through 2019. (c) Prepare the journal entry to record the interest received and the amortization for 2018. (d) Prepare any entries necessary at December 31, 2018, using the fair value option, assuming the fair value of the bonds is 860,000. (e) Prepare any entries necessary at December 31, 2019, using the fair value option, assuming the fair value of the bonds is 840,000 Dr. Cash 96,000
Cr. Debt investment 10,928
Interest Revenue 85,072
we cannot use the fair value option as assumed in part (e) because the business model of the bond is ( held-for collection of contractual cash flow) which matches the statements of IFRS 9 - Financial Instruments, which states that debt investment should be recorded on Amortized cost when a companys business model is fulfilling two conditions only:
I. Holding-of-financial asset.
II. Collection-of-contractual cash flows
is there another explanation on why the above entry in Dec 31, 2019 is correct?
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