External Financial Reporting 3

I don’t know how to handle this Accounting question and need guidance.

three question about External Financial Reporting 3

Question 1 (10 marks)

ABC company has been a successful private start up that focusses on high tech manufacturing RFID systems. The owner (Sheila) has been considering putting excess cash into a diversified portfolio of investments to create a steady stream of cash flows into the business to pay dividends. Sheila is considering day trading by buying and selling publicly traded stocks as well as buying long term publicly traded stocks that will keep their value and pay dividends. You, aspiring CPA, were recently approached by Sheila because she was not sure about the different terms that were coming up when it came to the proper accounting of these investments. She asked you to provide a clear report that shows how investments can be classified and recorded in their financial records. She also wanted to get a sense of what changes would happen if they were to consider an IPO to go pubic and how this would impact their classification of investments as they currently follow ASPE guidelines.

Question 2 (15 Marks)

On January 1, 2019, Keela Company purchased 4% bonds having a maturity value of $150,000. The bonds provide the bondholders with a 3% yield. They are dated January 1, 2019, and mature on January 1, 2024, with interest payments being e-transferred on December 31 of each year. Keela Company uses the effective interest method, the bonds are classified as FV-OCI investments, and Keela has a December 31styear end.

1. Prepare the journal entry at the date of the bond purchase.

2. Prepare the necessary journal entries for year end 2019. Fair Value on this date is $156,000

3. Prepare the necessary journal entries for year end 2020. Fair Value on this date is $151,000

4. Discuss the implications if Keela were to sell the bonds on January 1, 2021. You can use journal entries with a hypothetical selling value to help support your answer.