On February 18, 2016, Union Corporation purchased 10,000 shares of IBM common stock as a long-term investment at $60 per share. On December 31, 2016, and December 31, 2017, the market value of IBM stock is $58 and $61 per share, respectively.
1. What is the appropriate reporting category for this investment? Why?
2. Prepare the adjusting entry for December 31, 2016.
3. Prepare the adjusting entry for December 31, 2017.
Watney Inc. purchased $10,000 of 6% Hamel bonds at par on July 1, 2016. The bonds pay interest semiannually, and pay only interest and principal. Watney intends to hold the Hamel bonds for purposes of collecting the cash flows provided by interest and principal. During the second half of 2016, an increase in interest rates reduced the fair value of the bonds to $9,000. Watney reports investments under IFRS No. 9.
1. Prepare the December 31, 2016, journal entry to record Watney’s interest revenue.
2. Prepare the December 31, 2016, journal entry (if any is required) to record unrealized gains or losses on the Hamel bonds during 2016. (Do not consider whether an impairment should be recorded.)