Question
Use the following information to answer questions 1 and 2. On July 1, 20X4, UFO Inc. purchased $300,000 of bonds with a 4% coupon rate
Use the following information to answer questions 1 and 2.
On July 1, 20X4, UFO Inc. purchased $300,000 of bonds with a 4% coupon rate that mature
on June 30, 15 years later. The bonds provide a 5% yield. Interest is to be received on June 30
and December 31 every year. The bonds had a market value of $275,000 on December 31,
20X4, and $272,000 on December 31, 20X5. UFO is a public company and applies IFRSs.
1. Assuming the bonds will be held to maturity, what is the amount of interest revenue to be
recorded for the fiscal year ended December 31, 20X5?
a) $12,000
b) $13,484
c) $14,680
d) $15,000
2. Assume instead that UFOs business model is to collect the interest payments from the
bonds and to sell the securities before maturity. The entry to record the adjustment for the
bonds on December 31, 20X4, would include which of the following?
a) A debit to FVOCI investment for $5,680
b) A debit to FVPL investment for $5,680
c) A debit to FVOCI investment for $6,395
d) A debit to FVPL investment for $6,395
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