Reference no: EM132934245
Question - On January 1, 2020, Stanger Corp. paid $101,400 to acquire $100,000 of Mega Inc.'s bonds maturing on December 31, 2024. The bonds pay 6% interest semi-annually on June 30 and December 31. Stanger acquired the bonds with a view to profiting in the near term from a decline in the market rate of interest. On January 31, the market price of the bonds dropped to $92,500, due to a decline in Mega's credit quality.
Stanger's year end is December 31 and prepares its financial statements in accordance with IFRS. The company prepares all necessary adjustments and accruals relating to its investment at each month end.
Required -
a) How should Stanger classify this investment?
b) At initial recognition, what is the effective interest rate, per period, that Stanger is earning on its investment? Round to five significant decimal places (x.xxxxx%).
c) Prepare the journal entry to recognize this investment on January 1, 2020.
d) Prepare any journal entries required on January 31, 2020, by Stanger pertaining to this investment.
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