For the next five (5) questions: On January 1, 2022, when the prevailing market rate on similar instruments was at 7%, DEF Corporation acquired P3,000,000, 10-year bonds of RST Company. Transaction costs of P243,114.27 were incurred in the purchase, resulting to a new effective interest rate of 6%. The bonds will be accounted as a financial asset at fair value through other comprehensive income and will pay interest of 9% every June 30 and December 31. The fair value of the bonds at year- end are presented below: 103 99 December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 101 102 December 31, 2026 104 Bonds with face value of P1,000,000 were sold at 101 on June 30, 2024 after interest was collected. 8) After updating the related investment's fair value, what is the balance of Unrealized Gain or Loss - OCI to be "recycled" to the income statement in 2024? (Indicate if debit or credit)

For the next five (5) questions: On January 1, 2022, when the prevailing market rate on similar instruments was at 7%, DEF Corporation acquired P3,000,000, 10-year bonds of RST Company. Transaction costs of P243,114.27 were incurred in the purchase, resulting to a new effective interest rate of 6%. The bonds will be accounted as a financial asset at fair value through other comprehensive income and will pay interest of 9% every June 30 and December 31. The fair value of the bonds at year- end are presented below: 103 99 December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 101 102 December 31, 2026 104 Bonds with face value of P1,000,000 were sold at 101 on June 30, 2024 after interest was collected. 8) After updating the related investment's fair value, what is the balance of Unrealized Gain or Loss - OCI to be "recycled" to the income statement in 2024? (Indicate if debit or credit)

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 7MCQ

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For the next five (5) questions: On January 1, 2022, when the prevailing market rate on similar instruments was at 7%, DEF Corporation acquired P3,000,000, 10-year bonds of RST Company. Transaction costs of P243,114.27 were incurred in the purchase, resulting to a new effective interest rate of 6%. The bonds will be accounted as a financial asset at fair value through other comprehensive income and will pay interest of 9% every June 30 and December 31. The fair value of the bonds at year- end are presented below: 103 December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 99 101 102 December 31, 2026 104 Bonds with face value of P1,000,000 were sold at 101 on June 30, 2024 after interest was collected. 6) The investment in bonds will be initially recorded at what amount?
For the next five (5) questions: On January 1, 2022, when the prevailing market rate on similar instruments was at 7%, DEF Corporation acquired P3,000,000, 10-year bonds of RST Company. Transaction costs of P243,114.27 were incurred in the purchase, resulting to a new effective interest rate of 6%. The bonds will be accounted as a financial asset at fair value through other comprehensive income and will pay interest of 9% every June 30 and December 31. The fair value of the bonds at year- end are presented below: 103 December 31, 2022 December 31, 2023 December 31, 2024 99 101 December 31, 2025 102 December 31, 2026 104 Bonds with face value of P1,000,000 were sold at 101 on June 30, 2024 after interest was collected. 7) What is the total interest income to be recognized on the investment in bonds in 2023?
For the next (3) three questions: On June 1, 2022, GHI Co. acquired P3,000,000 bonds of Z Company at 102 plus transaction costs of P150,000. The bonds will be accounted as a financial asset at fair value through profit or loss. The bonds pay interest of 11% every May 30 starting in 2023 and will mature on May 31, 2025. The fair value of the bonds (clean price) at year-end are presented below: December 31, 2022 December 31, 2023 December 31, 2024 99 103 98 10. What is the net effect on the income statement of the investment in bonds for 2022? (Indicate if increase or decrease) 11. What is the carrying value of the investment in bonds on December 31, 2022? 12. All of the bonds were sold at fair value on December 31, 2023. The total cash to be received from the sale of the investment is:
On October 1, 2021, Valorant Company purchased a debt security having a face value of P3,000,000 with an interest rate of 10% for P3,200,000 including the accrued interest. A total of P50,000 was incurred and paid by Genshin Company which is in relation to the acquisition of the debt instrument. Valorant Company has a business model for fair value through other comprehensive income. The bonds mature on January 1, 2026 and pay interest semi-annually on January 1 and July 1. On December 31, 2021, the bonds had a market value of P3,400,000. What amount should the investment be initially recorded? A.P3,175,000B.P3,200,000C.P3,250,000D.P3,125,000
For the next (4) four questions: ABC Corporation acquired P2,000,000 bonds of X Company on January 1, 2022 when the prevailing market rate on similar instruments was at 12%. The bonds will be accounted as a financial asset at amortized cost. Transaction costs were also incurred in the purchase, resulting to a new effective interest rate of 9%. The bonds pay interest of 10% every June 30 and December 31 and will mature on December 31, 2025. The fair value of the bonds at year-end are presented below: December 31, 2022 December 31, 2023 December 31, 2024 December 31,2025 99 102 103 101 What is the amount of transaction costs capitalized to the investment in bonds on January 1, 2022? 2. What is the total interest income to be recognized on the investment in bonds in 2023? 3. 1. What is the carrying value of the investment in bonds on December 31, 2023? 4. After receipt of interest, half of the investment in bonds were sold at fair value on December 31, 2024. What is the gain or loss on…
On October 1, 2022, Milk Tea Company purchased a debt security having a face value of P3,000,000 with an interest rate of 10% for P3,200,000 including the accrued interest. A total of P50,000 was incurred and paid by Milk Tea Company which is in relation to the acquisition of the debt instrument. Milk Tea Company has a business model that collects all contractual cash flows for interest and principal payments. The bonds mature on January 1, 2027 and pay interest semi-annually on January 1 and July 1. On December 31, 2022, the bonds had a market value of P3,400,000. What amount should the investment be initially recorded? P3,250,000 P3,125,000 P3,175,000 P3,200,000
For the next (5) five questions: On September 1, 2022, when the prevailing market rate on similar instruments was at 5%, DEF Corporation acquired P5,000,000 bonds of Y Company. The bonds will be accounted as a financial asset at fair value through other comprehensive income. The bonds pay interest of 6% every March 1 and September 1 and will mature on September 1, 2027. The fair value of the bonds (dirty price) at year-end are presented below: December 31, 2022 December 31, 2023 December 31, 2024 December 31, 2025 December 31, 2026 107 105 103 104 101 5. What is the total interest income to be recognized on the investment in bonds in 2023? 6. What is the amount of adjustment to the Unrealized Gain or Loss – OCI account to update the fair value of the investment on December 31, 2023? (Indicate if debit or credit) 7. Prepare the journal entry to record the receipt of interest on March 1, 2024. 8. What is the carrying value of the investment in bonds on December 31, 2024? 9. Bonds with…
On January 1, 2020, Hole Company purchased 600 of $1,000 face value, 8% bonds of Lid Corp., for $553,670, to yield 10%. The bonds, which mature on January 1, 2025, pay interest semiannually on January 1 and July 1. Assuming that Hole uses the straight-line method of amortization and that the bonds are accounted for under the amortized cost method, the net carrying value of the bonds should be shown on Hole’s December 31, 2020, statement of financial position at $553,670 $600,000 $557,351 $562,936
On January 1, 2022, BTS Company purchased 3,000, P1,000 face value term bons with a stated rate of 10% as at amortized cost. The bonds pay interest annually on December 31 and will be redeemed entirely by the issuer on December 31, 2025. The bond investment was purchased for P2,819,100 at an effective rate of 12%.On December 31, 2023, the entity changes business model for managing its financial assets and this investment as reclassified as debt investments at fair value through profit or loss. On this date, the bonds are quoted at 101. What is the carrying value of the debt investment on December 31, 2023 prior to reclassification?
PUP CAF Corporation acquired a 4-year, P3,000,000 par value bonds when the prevailing rate of interest is 14% on January 1, 2020. Interests of 12% are collectible every December 31. The Company’s business model is to collect contractual cash flows and to sell the bonds when circumstances allow. The bonds were selling at 101 on December 31, 2020 and 95 on December 31, 2021. How much is the unrealized gain (loss) recognized in the statement of comprehensive income for the year ended December 31, 2021?
On Jan. 1, 2018, ABC acquired P5,000,000 face value bonds as aninvestment that will provide contractual cashflows. On acquisitiondate, it had a fair value of P5,400,000, transaction cost of P10,020,nominal interest rate of 9% payable every Jan. 1, a term of 5 years,and an effective interest rate of 7%. The bonds were valued asfollows: Date Fair Value Date Fair ValueDec. 31, 2018 5,300,000 Dec. 31, 2021 5,100,000Dec. 31, 2019 5,150,000 Dec. 31, 2022 5,050,000Dec. 31, 2020 5,200,000 Dec. 31, 2023 5,000,000 If on Dec. 15, 2021, there was change in the purpose ofholding the asset to trading only and it qualifies forreclassification, what is the journal entry for transfer theinvestment to the new account?
1. Sandhill Company purchased, on January 1, 2025, as an available-for-sale security, $440,000 of the 6%, 5-year bonds of Oak Corporation for $380,203, which provides an 8% return. The bonds pay interest semi-annually on June 30th and December 31st. For this case, prepare an amortization table. Use the effective-interest method for discount and premium amortization (construct an amortization table). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.) Maturity Value of Bonds Purchase Price of Bonds Stated Interest Rate Bond Yield Rate Interest Payment Term (fraction of annual) Date Cash Received Interest Revenue Bond Discount Amortization Carrying Amount of Bonds 1/1/2025 6/30/2025 12/31/2025 6/30/2026 12/31/2026 6/30/2027 12/31/2027 6/30/2028 12/31/2028 6/30/2029 12/31/2029 6/30/2030…