Flower Corporation uses IFRS, and purchased €1,000,000 of James Company 5% bonds at face value during 2011. Unfortunately, a combination of problems at James Company and in the debt market caused the fair value of the James investment to decline to €600,000 by December 31, 2011. On December 31, 2011, Flower calculated the present value of the future cash flows expected to be collected from the James investment (using the interest rate effective when the investment was made) to equal €750,000. Flower recognized an OTT impairment. By December 31, 2012 the fair value of the investment increased to €875,000, and Flower calculated the present value of the future cash flows expected to be collected from the James investment (again using the interest rate effective when the investment was made) to equal €800,000.
Required:
1. Prepare appropriate entry(s) to account for the James investment at December 31, 2011, assuming Flower classifies its James investment as held to maturity.
2. Prepare appropriate entry(s) to account for the James investment at December 31, 2012, assuming Flower classifies its James investment as held to maturity.
3. Prepare appropriate entry(s) to account for the James investment at December 31, 2011, assuming Flower classifies its James investment as available for sale.
4. Prepare appropriate entry(s) to account for the James investment at December 31, 2012, assuming Flower classifies its James investment as available for sale.
5. How would your answer to requirement 4 change if the James investment was equity rather than debt?