Reference no: EM133073096
Question - On September 10, 2020, Bridgeport Corporation, a publicly traded company, purchased 1,300 common shares in MNL Ltd at a cost of $26.70 per share. The number of shares purchased was not a significant percentage of MNL's ownership, and Bridgeport designated the investment as fair value through other comprehensive income (FV-OCI) under IFRS. Concerned about the inherent risk of losing value through the change in market price of the shares, Bridgeport immediately purchased an option to sell the MNL shares for $34,710. The option cost $4,200. On September 30, 2020, Bridgeport prepared its quarterly financial statements. On that day, the MNL shares were trading at $29.50 per share. The options, on the other hand, were trading at $500.
Required -
1. Is this a fair-value hedge or a cash flow hedge, from Bridgeport's perspective?
2. Prepare the necessary 5 journal entries to record the above events (for Sep 10 and Sep 30)
To record purchase of shares.
To record purchase of hedge option.
To record fair value adjustment of shares.
To record fair value adjustment of options.
To record the "fix" under hedge accounting.
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