On January 1, 2017, Panorama Company purchased $400,000, 8% bonds. The bonds were purchased to yield 10% interest.
Interest is payable semiannually on July 1 and January 1 with the first interest payment to occur on July 1, 2017.
The bonds mature on January 1, 2022. Panorama Company uses the effective-interest method to amortize discount or premium.
Panorama Company classifies the bonds as available-for-sale.
On January 1, 2019, Panorama Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.
Required:
(a) Determine the purchase price and prepare the journal entry to record the purchase of bonds on January 1, 2017.
(b) Prepare the amortization schedule for the bonds.
(c) Prepare the journal entries to record/accrue the semiannual interest each period.
(d) The fair value of the bonds is $372,726 on December 31, 2018, prepare the necessary adjusting entry.
Note that the fair value adjustment balance on December 31, 2017, is a debit of $3,375.
(e ) Prepare the journal entry to record the sale of the bonds on January 1, 2019.

Available for sale are those investment whose purpose is to earn interest income for strategic time. gain and loss are recorded in other comprehensive income and at the time of disposal any gain on income recorded will be routed through profit and loss. Accounting is done as per IFRS-9.

Face Value = $400000

Coupon Rate = 8%

IRR = 10%

A) January 1, 2017

purchase Price = Face Value of bond i.e 400000

journal Entry

Investment in OCI 400000

Cash 400000

To record the invest in OCI.

B) Amortization Schedule

Date opening value IRR 10% CR 8% Closing Value Fair value

1-1-2017 400000 40000 32000 408,000 411,375

1-1-2018 411375 41,138 32000 420512 372726

C) journal Entries

30-6-2017

Cash/Receivable 16000

Interest Income 16000

To record the semi annual interest income

31-12-2017

Cash/Receivable 16000

Interest Income OCI 16000

To record the semi annual interest income

Investment in bond OCI 8000

Interest income OCI 8000

To record the invest in at Yield 10%

1-7-2018

Cash/Receivable 16000

Interest Income 16000

To record the semi annual interest income

31-12-2018

Cash/Receivable 16000

Interest Income OCI 16000

To record the semi annual interest income

Investment in bond OCI 9137

Interest income OCI 9137

To record the invest in at Yield 10%

D)

31-12-2017

Investment in OCi 3375

OCI 3375

To record the Debit increase in Investment due to fair valuation.

31-12-2018

OCI 47,786

Investment in bond OCI 47,786

To record the credit decrease in Investment due to fair valuation.

E) Disposal of investment

Cash 370726

Loss on Disposal 2000

Invest in bonds OCI 372726

To record the disposal of investment aviable for sale