Question 2 (20 marks) Dogfish Limited is a company incorporated in Hong Kong. Its finan cial year end is 31 December. On 1 January 2017, Dogfish Limited purchased 5,000 shares issued by Frogfish Limited for trading purposes. To raise funds for the purchase of shares issued by Frogfish Limi ted, Dogfish Limited issued corporate bonds with the principal value of $1,000,000 and a term of five years on 1 January 2017. On 1 January 2017, the selling price of a share of Frogfish Limi ted was $200. The transaction cost incurred was $300. The share price of Frogfish Limited decreased to $190 on 31 December 2017. Dogfish Limited sold all the shares of Frogfish Limited on 1 March 2018 when the share price was $250. The annual interest rate paid by Dogfish Limited for the corpora te bond was 8%. The interest would be payable once a year on 31 December

and the principal would be payable on 31 December 2021. The market interest rate for similar bond in the market was 10% per annum.

Required: a With reference to relevant financial reporting and accounting standards, determine the nature of the shares purchased by Dogfish Limited from the perspective of Frogfish Limited. (3 marks)

b Prepare the journal entries (without narratives) relating to the purchase of shares issued by Frogfish Limited in the books of Dogfish Limited for the years ended 31 December 2017 and 31 December 2018. (6 marks)

c Prepare the journal entries (without narratives) relating to the issue of corporate bonds by Dogfish Limited for the years ended 31 December 2017 and 31 December 2018. (11 marks)