Assignment
Question 1
Avoiding Faux Pas (AFP), a leading international school of etiquette, sells $3,000,000 of six-year, 6% bonds priced to yield 7.2%. The bonds are dated July 1, 2020, but due to some regula¬tory hurdles are not issued until December 1, 2020. Interest is payable annually on June 30 each year. AFP can call the bonds on July I, 2024, at 102. The bonds sell for $2,838,944 plus accrued interest.
AFP sells shares to the public for the first time in early 2023. They use part of the IPO (initial public offering) proceeds to buy back $1,000,000 (face value) of the bonds in the open market on July I, 2023. AFP pays a total of $950,000 to reacquire the bonds and retires them.
On July 1, 2024, AFP calls the remaining bonds and retires them. The company's year-end is June 30.
Required:
a. Complete a bond amortization spreadsheet using the format that follows, . . Include the partial redemption of bonds on July 1, 2023.
Date Interest expense Interest paid Discount amortized Amortized cost
Prepare journal entries to record:
b. The issuance of the bonds on December 1, 2020, assuming that AFP has adopted a policy of crediting interest payable (Or the accrued interest on the date of sale.
c. Payment of interest and related amortization on June 30, 2021.
d. Payment of interest and related amortization on June 30, 2023.
e. Repurchase of the bonds on July 1, 2023.
f. Payment of interest and related amortization on June 30, 2(124. v. Repurchase of the bonds on July 1, 2024.
Question 2
Daring 2017, Surinder's Copper Mine Inc. (SCMI) built the infrastructure for an open pit copper mine in a remote area in Northern British Columbia at a total cost of $20 million, paid in cash. The mine is expected to produce 800,000 tonnes of copper over its estimated useful life of 10 years.
The BC government's approval granted to SCMI was conditional upon the company re me-diating the site and establishing a wildlife reserve. The estimated cost of remediation is $5 mil¬lion. An appropriate interest rate for this obligation is 5%.
Assume that SCNII has grouped the $20 million construction costs and the rernediation asset in an account called "Mine assets" and that it uses the units-of-production method to depreciate this asset. SCMI began mining operations in January 2018 and during the year it mined 60,000 tonnes of copper. In 2019, it increased its production to 90,000 tonnes of copper. While SCMI is a private company, it elects to report its financial results in accordance with 1FRS. Its year-end is December 31.
Required:
a. Prepare a journal entry to record the site restoration obligation and a summary journal entry to record the cost of construction. Date both entries December 31, 2017.
b. Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31, 2018.
c. Prepare the adjusting entries pertaining to the mine asset and site restoration obligation for the year ended December 31, 2019.