NB Corp purchased a 100 000 face value bond of Myers

Corp #2061
NB Corp purchased a 100 000 face value bond of Myers Corp

NB Corp. purchased a $100,000 face-value bond of Myers Corp. on August 31, 2016, for
$104,490 plus accrued interest. The bond pays interest annually each November 1 at a rate of
9%. On November 1, 2016, NB Corp. received the annual interest. On December 31, 2016,
NB's year end, The Globe and Mail newspaper indicated a fair value for these bonds of 103.2.
NB sold the bond on January 15, 2017, for $102,900 plus accrued interest. Assume NB Corp.
follows IFRS and does not report interest income separately from gains and losses on these
investments.

Instructions

(a) Prepare the journal entries to record the purchase of the bond, the receipt of interest, any
adjustments required at year end, and the subsequent sale of the bond.

(b) How many months was the bond held for by NB Corp. in 2016? Based on this, how much of
the income reported on this bond should be for interest received? Verify that your answer fits
with the income that is reported.

(c) How would the accounting and reporting change if NB Corp. applied accounting standards
for private enterprises? (Explain how interest and net gains or losses would be reported.)

(d) If this bond had been acquired to earn a return on excess funds, did the company meet its
objective? If yes, how much return did NB Corp. earn while the bond was held? If not, why not?

NB Corp purchased a 100 000 face value bond of Myers Corp

ANSWER
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