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    CO1 2301E IP02.Solution

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    nasie.kazemi

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    CO1 2301E IP02.Solution

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    nasie.kazemi
    42 views1 page

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    Copyright:

    © All Rights Reserved
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    Download as xlsx, pdf, or txt
    42 views1 page

    CO1 2301E IP02.Solution

    Uploaded by

    nasie.kazemi

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
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    Exhibit

    Financial instrument adjustments

    Purpose: To provide the adjusting journal entries required for the financial instruments.

    Doyle Games note receivable

    Financial asset recognized upon issuance in January, Year 1:


    Calculated as PV 8%, $80,000 for three years:
    Fair value $ 63,507 (present value of $80,000 at 8% and three years)
    Value recorded 80,000
    Adjustment required $ 16,493 Note: If using PV factor of
    0.79 = $63,200, adjustment is $16,800.

    Dr. Gain on sale of equipment $ 16,493


    Cr. Note receivable $ 16,493
    To adjust note receivable to the fair value at the time it was issued.

    Interest for Year 1 using 8% recorded at the end of the year:


    Interest $ 5,081 = 8% × $63,507
    Note: If using PV factor of 0.79, interest
    would equal $5,056 ($63,200 × 8%).

    Dr. Note receivable $ 5,081


    Cr. Interest revenue $ 5,081
    To record interest revenue on notes receivable at the end of Year 1.

    Note: PV factor would be calculated as 1/(1.08)^3 = 0.7938, rounded to 0.79.

    Pacific Loans and Savings shares

    Purpose: To determine the entry to income for the change in fair market value.

    Cost — Acquisition $ 22.00


    Fair value at year end 18.95
    Difference (3.05) unrealized loss
    Shares 1,500
    Unrealized loss $ (4,575)

    Dr. Fair value adjustment (profit and loss) (1,500 × 3.05) $4,575
    Cr. Investment — Pacific — FVPL $4,575
    To adjust the Pacific shares to fair market value.

    Revised carrying value $28,425

    Conclusion: Adjusting entries have been prepared for the financial instruments.

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