Reference no: EM132713167

Windsor Company prepares semi-annual financial statements on 31 December and 30 June of each year. Windsor issued 5-year, 14 per cent bonds with a $300,000 face value, for $300,000. The bonds are dated on 31 October 2019, call for semi-annual interest payments on 30 April and 31 October, and mature in 5 years on 31 October Windsor made the required interest and principal payments when due.

• Windsor Company applies International Financial Reporting Standards (IFRS). Effective Interest Rate (EIR) is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset/liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. Windsor Chief of Accounts commented that the effective interest method is the method that is used in the calculation of the amortized cost of a financial asset/liability and in the allocation and recognition of the interest revenue or interest expense in P/L over the relevant period.

Required:

Problem 1. Prepare necessary journal entries to record transactions on the following dates:

a. 31 October 2019
b. 31 December 2019
c. 30 April 2020
d. 31 October 2024

Problem 2. Re-do the journal entry on date of issuance if the bonds were issued at $250,000 instead? Explain journal entries involved in amortizing the discount/premium as required by IFRS 9?

Problem 3. When would preferred shares be a better investment choice than bonds? Refer to relevant IFRS when appropriate?