Fair Value Through Net Income Method

question 14

Essay

Fair value through net income method
On October 1, Whiteside Ltd. purchased a 7% bond with a face value of $ 1,000 for trading purposes, accounting for the investment at fair value through net income. The bond was priced at 1.023 to yield Whiteside 5%, and pays interest annually each October 1. Whiteside has a December 31 year end, and at this date, the bond's fair value was $ 1,050. Assume Whiteside applies IFRS and follows a policy of not reporting interest income separately from investment income.
Instructions
a) Prepare Whiteside's entry for the purchase of the investment.
b) Prepare Whiteside's entry for the December 31 interest accrual.
c) (i) Prepare Whiteside's entry for the year-end fair value adjustment. (ii) Assume Whiteside applies ASPE, uses the effective-interest method, and follows a policy of reporting interest income separately.

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Definitions:

Unilateral Mistake

A contractual misunderstanding that occurs when only one party is mistaken about a fundamental aspect of the contract.

Disclose Facts

The act of revealing or making known information that is true and relevant, often within a legal context.

Contract

A legally binding agreement between two or more parties that is enforceable by law.

Undue Influence

Persuasion that is less than actual force but more than advice and that induces a person to act according to the will or purposes of the dominating party.