Scribd
Upload
566 views3 pages

A1c - SW#3 PDF

This document contains a multi-part assignment on bond valuation and accounting. Students are asked to solve 5 problems in Part I and answer additional questions in Part II about bonds held by various companies, including calculating interest income, unrealized gains/losses, impairment losses, and gains/losses on sales. The student must show their work and solutions for each problem.

Uploaded by

Lemuel Reña
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
566 views3 pages

A1c - SW#3 PDF

This document contains a multi-part assignment on bond valuation and accounting. Students are asked to solve 5 problems in Part I and answer additional questions in Part II about bonds held by various companies, including calculating interest income, unrealized gains/losses, impairment losses, and gains/losses on sales. The student must show their work and solutions for each problem.

Uploaded by

Lemuel Reña
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Name: Date:

Section: Seatwork #3
Answer the following. Show your solutions for each problem.
1 point for each solution, whether or not your answer is correct.

Part I.
1) On January 1, 2014, Reign Company purchased 12% bonds with face value of P5,000,000
for P5,380,000. The bonds provide an effective yield of 10%. The bonds are dated January
1, 2014, mature on January 1, 2019 and pay interest annually on December 31 of each
year. The entity has elected the fair value option for the bond investment. What total
income should be reported for 2014?

2) On January 1, 2014, Queen Company purchased bonds with face value of P5,000,000 for
P5,400,000. The stated interest rate is 8% payable annually every December 31. The bonds
are acquired to yield an effective rate of 6%. The entity has elected the fair value option for
the bond investment. On December 31, 2014, the bonds had a fair value of P5,600,000.
What total income should be reported for 2014?

3) Tiger Company purchased P5,000,000 of bonds at par. The entity has elected the fair value
model for this investment. At year-end, the entity received annual interest of P200,000 and
the fair value of the bonds was P4,705,000.
What amount should be reported for the bond investment as total income or loss in the
income statement?

4) The following information is available concerning the San Carlos Corporation's sinking fund
transactions in 2010.
Jan. 1 Established a sinking fund to retire an outstanding bond issue by
contributing P4,250,000.
Jan. 15 Purchased securities for P4,000,000.
Jul-30 Sold securities originally costing P480,000 for P450,000.
Dec. 31 Collected dividends and interest on the remaining securities in the
amount of P490,000; the securities had a market value of P3,600,000 at
this time.

The sinking fund on Dec. 31, 2010 is?

5) On January 1, 2010, San Fernando Corp. created a special building fun by depositing a single
sum of P200,000 with an independent trustee. The purpose of the fund is to provide
resources to build an addition to the older office building during the latter part of 2014. The
company anticipates a total construction cost of P1,000,000 and completion by January 1,
2015. The company plans to make equal annual deposit from Dec. 31, 2010 through 2014,
to accumulate the P1,000,000. The independent trustee will trustee will increase the fund
each Dec 31 at an interest rate at 10%. The accounting periods of the company and the
fund end on Dec 31.
How much is the annual deposit to the fund?

Page 1 of 3
Part II.

A. Paombong Corp. purchased P200,000 8% bonds for P184,557 on January 1, 2008.


Paombong classified the bonds as debt investment through FVOCI. The bonds were
purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1.
The bonds mature on January 1, 2013. Paombong uses the effective interest method to
amortize premium or discount. On January 2, 2010, the fair value of the bonds did not
change from the previous reporting period end. On this date, Paombong sold the bonds for
its fair value after receiving interest to meet its liquidity needs.

The market values of the bond are as follows:


December 31, 2008 190,449.00
December 31, 2009 186,363.00

Based on the above and the result of your audit, determine the following:
1) Interest income for the year 2008
2) Unrealized holding gain as of December 31, 2008
3) Interest income for the year 2009
4) Unrealized holding gain as of December 31, 2009
5) Realized gain or loss on sale on January 2, 2010

B. On June 1, 2009, Pandi Corporation purchased as a long term investment 4,000 of the
P1,000 face value, 8% bonds of Violet Corp. The bonds were purchased to yield 10%
interest. Interest is payable semi-annually on Dec 1 and June 1. The bonds mature on June
1, 2015. Pandi uses the effective interest method of amortization. On November 1, 2010,
Pandi sold the bonds for a total consideration of P3,925,000. Pandi intended to hold these
bonds until they matured, so year-to-year market fluctuations were ignored in accounting
for bonds.

Based on the above, answer the following:


1) The purchase price of the bonds on June 1, 2009 is
2) The interest income for the year 2009 is
3) The carrying amount of the investment in bonds as of Dec. 31, 2009 is
4) The interest income for the year 2010 is
5) The gain on sale of investment in bonds on Nov. 1, 2010 is

Page 2 of 3
C. On April 1, 2010, Moncada Corp. purchased 5-year P10,000,000 10% bonds dated January
1, 2010. The bonds were purchased to yield 12%. Interest is payable annually every
December 31. Moncada Corp. has the positive intention and ability to hold these bonds to
maturity. The issuer paid the interest as scheduled in 2010 and 2011. During 2012, the
issuer of the bonds is in financial difficulties and it becomes probable that the issuer will be
put into administration by a receiver. On Dec. 31, 2012, Moncada estimated that none of
the interest will be collected and only P8,000,000 of the principal will be collected on
maturity date. No cash flows are received during 2013. At the end of 2013, the issuer is
released from administration and Moncada receives a letter from the receiver stating that
the issuer will be able to meet its remaining obligations, including interest and repayment
of principal.

Based on the above, answer the following:


1) How much was the total amount paid to acquire the investment in bonds on April 1, 2010?
2) How much is the carrying amount of the investment in bonds on Dec. 31, 2010?
3) How much should be recognized as impairment loss in 2012?
4) How much is the interest income to be recognized in 2013?
5) How much should be recognized as reversal of impairment loss in 2013?

Page 3 of 3

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy