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Determination of Purchase Price

On January 1, 2020 Aparri Company purchased 5-year bonds with face value of P8,000,000 and stated interest of
10% per year payable semiannually January 1, and July 1. The bonds were acquired to yield 8%.
What is the purchase price of the bonds?

PV of Principal 5,404,513.35 PV of 1 n=10 i=4% 8,000,000

PV of Interest 3,244,358.31 PV of OA of 1 n=10 i=4% (8,000,000 x 10% x 6/12)
8,648,871.66

Purchase of Debt Investment and Subsequent Measurement

On July 1, 2020, Tuguegarao Company purchased as a long term investment P8,000,000 of Candon Company’s 8%
bonds for P7,570,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on
December 31. Tuguegarao uses the interest method.

In its December 31, 2020 balance sheet, what amount should Tuguegarao report as investment in bonds using
Amortized Cost?
Purchase Price 7,570,000
Less: Interest Purchased 320,000
Value for the Bond 7,250,000
Amortization 42,500 (7,250,000 x 10% x 6/12) – (8,000,000 x 8% x 6/12)
CA, 12/31/20 7,292,500

In its December 31, 2020 balance sheet, what amount of interest income is recognized?
Value of Bond 7,250,000
x Yield Rate 10%
x Period 6/12
Interest Income 362,500

Accounting for Debt Investments

On January 1, 2019, Shine Company purchased a 6-year bond with a face amount of P3,500,000 to yield 13%.
Interest is to be paid every December 31 while the principal is to be repaid on maturity. The maturity date of the
investment is on January 1, 2025. An active market is available so there is no problem to ascertain the fair value of
the bonds. The stated rate of the bond is 9%. On December 31, 2019 the bond is trading at 12%; on December 31,
2020 the bond is trading at 11.75%; on December 31, 2021 the bond is trading at 14%; and on December 31, 2022
the bond is trading at 13.75%. Use four decimal places only.

What is the purchase price of the investment?

PV of Principal 1,681,050 PV of 1 n=6 i=13% 3,500,000
PV of Interest 1,259,212.50 PV of OA of 1 n=6 i=13% (3,500,000 x 9%)
2,940,262.50

What is the Carrying Amount of the investment:

FVTPL FVTOCI AC
12/31/1 3,121,41 3,007,496.6
9 2 3
12/31/2 3,206,02
0 0
12/31/2 3,093,80 3,169,322.4
1 4 4
12/31/2 3,225,53 3,266,334.3
2 0 6
 Computation of FV:
Dec2019(12%,n=5 Dec2020(11.75%,n=4 Dec2021(14%,n=3 Dec2022(13.75%,n=2
) ) ) )
PV of Principal 1,985,900 2,244,200 2,362,500 2,705,150
PV of Interest 1,135,512 961,821 731,304 520,380
FV, end 3,121,412 3,206,020 3,093,804 3,225,530

Computation of Amortization using EIM:

Year Beginning Balance Interest Received Interest Income Amortization Balance
₱3,007,496.6
2019 ₱2,940,262.50 ₱315,000.00 ₱382,234.13 ₱67,234.13 3
₱3,083,471.1
2020 ₱3,007,496.63 ₱315,000.00 ₱390,974.56 ₱75,974.56 9
₱3,169,322.4
2021 ₱3,083,471.19 ₱315,000.00 ₱400,851.25 ₱85,851.25 4
₱3,266,334.3
2022 ₱3,169,322.44 ₱315,000.00 ₱412,011.92 ₱97,011.92 6

Interest Income of the investment

FVTPL FVTOCI AC
12/31/1 382,234.1
9 3
12/31/2 315,00 390,974.5
0 0 6
12/31/2 400,851.2
1 5
12/31/2 315,00 412,011.9
2 0 2

FVTPL: 3,500,000 x 9% = 315,000

FVTOCI and AC, based on the amortization above.

Gain or Loss:
FVTPL FVTOCI
(P/L) (OCI)
12/31/1 181,149.50 113,915.38
9
12/31/2 84,608.00 8,633.44
0
12/31/2 (112,216.00 (198,067.25
1 ) )
12/31/2 131,726.00 34,714.08
2

FVTPL FVTOCI
₱ ₱
FV, end 3,121,412.00 3,121,412.00
₱ ₱
CA 2,940,262.50 3,007,496.63 (2,940,262.50 + 67,234.13)
Gain or Loss - 2019 ₱ 181,149.50 ₱ 113,915.38

₱ ₱
FV, end 3,206,020.00 3,206,020.00
CA ₱ ₱ (3,121,412 + 75,974.56)
 3,121,412.00 3,197,386.56
Gain or Loss - 2020 ₱ 84,608.00 ₱ 8,633.44

₱ ₱
FV, end 3,093,804.00 3,093,804.00
₱ ₱
CA 3,206,020.00 3,291,871.25 (3,206,020 + 85,851.25)
Gain or Loss - 2021 ₱ (112,216.00) ₱ (198,067.25)

₱ ₱
FV, end 3,225,530.00 3,225,530.00
₱ ₱
CA 3,093,804.00 3,190,815.92 (3,093,804 + 97,011.92)
Gain or Loss - 2022 ₱ 131,726.00 ₱ 34,714.08

Checking: FVTPL FVTOCI

₱
Interest Income 315,000.00 ₱ 382,234.13
₱
Gain or Loss 181,149.50 ₱ 113,915.38
₱
496,149.50 ₱ 496,149.50
₱
Interest Income 315,000.00 ₱ 390,974.56
₱ ₱
Gain or Loss 84,608.00 8,633.44
₱
399,608.00 ₱ 399,608.00
₱
Interest Income 315,000.00 ₱ 400,851.25
₱ ₱
Gain or Loss (112,216.00) (198,067.25)
₱
202,784.00 ₱ 202,784.00
₱
Interest Income 315,000.00 ₱ 412,011.92
₱ ₱
Gain or Loss 131,726.00 34,714.08
₱
446,726.00 ₱ 446,726.00

Accounting for Debt Investments

On January 1, 2019, Shine Company purchased a 6-year bond with a face amount of P5,500,000 to yield 8%.
Interest is to be paid every December 31 while the principal is to be repaid on maturity. The maturity date of the
investment is on January 1, 2025. An active market is available so there is no problem to ascertain the fair value of
the bonds. The stated rate of the bond is 11.50%. On December 31, 2019 the bond is trading at 12%; on December
31, 2020 the bond is trading at 11.75%; on December 31, 2021 the bond is trading at 14%; and on December 31,
2022 the bond is trading at 13.75%. Use four decimal places only.

What is the purchase price of the investment?

PV of Principal 3,466,100 PV of 1 n=6 i=8% 5,500,000
PV of Interest 2,923,984.25 PV of OA of 1 n=6 i=8% (5,500,000 x 11.50%)
6,390,084.25

What is the Carrying Amount of the investment:

 FVTPL FVTOCI AC
12/31/1 5,400,73 6,268,790.9
9 6 9
12/31/2 5,457,875.5
0 0
12/31/2 5,180,91 5,996,317.8
1 2 1
12/31/2 5,295,840 5,843,523.2
2 4

Computation of FV:
Dec2019(12%,n=5 Dec2020(11.75%,n=4 Dec2021(14%,n=3 Dec2022(13.75%,n=2
) ) ) )
PV of Principal 3,120,700 3,526,600 3,712,500 4,250,950
PV of Interest 2,280,036 1,931,275.50 1,468,412 1,044,890
FV, end 5,400,736 5,457,875.50 5,180,912 5,295,840

Computation of Amortization using EIM:

Year Beginning Balance Interest Received Interest Income Amortization Balance
201 ₱6,268,790.9
9 ₱6,390,084.25 ₱632,500.00 ₱511,206.74 -₱121,293.26 9
202
0 ₱6,268,790.99 ₱632,500.00 ₱501,503.28 -₱130,996.72 ₱6,137,794.27
202 ₱5,996,317.8
1 ₱6,137,794.27 ₱632,500.00 ₱491,023.54 -₱141,476.46 1
202 ₱5,843,523.2
2 ₱5,996,317.81 ₱632,500.00 ₱479,705.42 -₱152,794.58 4

Interest Income of the investment

FVTPL FVTOCI AC
12/31/1 511,206.7
9 4
12/31/2 632,50 501,503.2
0 0 8
12/31/2 491,023.5
1 4
12/31/2 632,50 479,705.4
2 0 2
FVTPL: 5,500,000 x 11.50% = 632,500
FVTOCI and AC, based on the amortization above.

Gain or Loss:
FVTPL FVTOCI
(P/L) (OCI)
12/31/1 (989,348.25 (868,054.99
9 ) )
12/31/2 57,139.50 188,136.22
0
12/31/2 (276,963.50 (135,487.04
1 ) )
12/31/2 114,928.00 267,722.58
2

FVTPL FVTOCI
 ₱ ₱
FV, end 5,400,736.00 5,400,736.00
₱ ₱
CA 6,390,084.25 6,268,790.99
Gain or Loss - 2019 ₱ (989,348.25) ₱ (868,054.99)
₱ ₱
FV, end 5,457,875.50 5,457,875.50
₱ ₱
CA 5,400,736.00 5,269,739.28
Gain or Loss - 2020 ₱ 57,139.50 ₱ 188,136.22
₱ ₱
FV, end 5,180,912.00 5,180,912.00
₱ ₱
CA 5,457,875.50 5,316,399.04
Gain or Loss - 2021 ₱ (276,963.50) ₱ (135,487.04)
₱ ₱
FV, end 5,295,840.00 5,295,840.00
₱ ₱
CA 5,180,912.00 5,028,117.42
Gain or Loss - 2022 ₱ 114,928.00 ₱ 267,722.58

Checking: FVTPL FVTOCI

₱ ₱
Interest Income 632,500.00 511,206.74
₱ ₱
Gain or Loss (989,348.25) (868,054.99)
₱ ₱
(356,848.25) (356,848.25)
₱ ₱
Interest Income 632,500.00 501,503.28
₱ ₱
Gain or Loss 57,139.50 188,136.22
₱ ₱
689,639.50 689,639.50
₱ ₱
Interest Income 632,500.00 491,023.54
₱ ₱
Gain or Loss (276,963.50) (135,487.04)
₱ ₱
355,536.50 355,536.50
₱ ₱
Interest Income 632,500.00 479,705.42
₱ ₱
Gain or Loss 114,928.00 267,722.58
₱ ₱
747,428.00 747,428.00

Accounting for Debt Investments

On January 1, 2019, Shine Company purchased a 6-year bond with a face amount of P6,000,000 to yield 8%.
Interest and principal is to be paid every December 31. An active market is available so there is no problem to
ascertain the fair value of the bonds. The stated rate of the bond is 11.80%. The bond is trading:
December 31, 2019 96
December 31, 2020 101
 December 31, 2021 98.5
December 31, 2022 99.75
Use four decimal places only.

What is the purchase price of the investment?

PV of Principal 4,622,900 PV of OA n=6 i=8% 1,000,000
PV of Interest 2,031,169,40 PV of 1
6,654,069.40

Computation of PV of Interest:
Principal Interest (11.80%) PV Factor
₱ ₱ ₱
6,000,000.00 708,000.00 0.9259 655,537.20
₱ ₱ ₱
5,000,000.00 590,000.00 0.8573 505,807.00
₱ ₱ ₱
4,000,000.00 472,000.00 0.7938 374,673.60
₱ ₱ ₱
3,000,000.00 354,000.00 0.735 260,190.00
₱ ₱ ₱
2,000,000.00 236,000.00 0.6805 160,598.00
₱ ₱ ₱
1,000,000.00 118,000.00 0.6302 74,363.60
₱ 2,031,169.40

What is the Carrying Amount of the investment:

FVTPL FVTOCI AC
12/31/1 4,950,000.0 5,478,394.9
9 0 5
12/31/2 4,040,000.0
0 0
12/31/2 2,955,000.0 3,200,799.8
1 0 7
12/31/2 1,995,000.0 2,102,863.8
2 0 6

Computation of FV:
Principal Trading Fair Value
₱ ₱ ₱
5,000,000.00 0.9900 4,950,000.00
₱ ₱ ₱
4,000,000.00 1.0100 4,040,000.00
₱ ₱ ₱
3,000,000.00 0.9850 2,955,000.00
₱ ₱ ₱
2,000,000.00 0.9975 1,995,000.00

Computation using EIM:

Year Beginning Balance Interest Received Interest Income Repayment Amortization Balance
201 ₱1,000,000.0 - ₱5,478,394.9
9 ₱6,654,069.40 ₱708,000.00 ₱532,325.55 0 ₱1,175,674.45 5
202 ₱1,000,000.0 -
0 ₱5,478,394.95 ₱590,000.00 ₱438,271.60 0 ₱1,151,728.40 ₱4,326,666.55
202 ₱1,000,000.0 - ₱3,200,799.8
1 ₱4,326,666.55 ₱472,000.00 ₱346,133.32 0 ₱1,125,866.68 7
202 ₱3,200,799.87 ₱354,000.00 ₱256,063.99 ₱1,000,000.0 - ₱2,102,863.8
 2 0 ₱1,097,936.01 6

Interest Income of the investment

FVTPL FVTOCI AC
12/31/1 532,325.5
9 5
12/31/2 590,000.0 438,271.6
0 0 0
12/31/2 346,133.3
1 2
12/31/2 354,000.0 256,063.9
2 0 9

Computation FVTPL:
Principal Interest (11.80%)
₱
6,000,000.00 ₱ 708,000.00
₱ ₱
5,000,000.00 590,000.00
₱
4,000,000.00 ₱ 472,000.00
₱ ₱
3,000,000.00 354,000.00

Gain or Loss:
FVTPL FVTOCI
(P/L) (OCI)
12/31/1 ₱
9 ₱ (704,069.40) (528,394.95)
12/31/2 ₱ ₱
0 90,000.00 241,728.40
12/31/2 ₱ ₱
1 (85,000.00) 40,866.68
12/31/2 ₱ ₱
2 40,000.00 137,936.01

FVTPL FVTOCI
₱ ₱
FV, end 4,950,000.00 4,950,000.00
₱ ₱
CA 5,654,069.40 5,478,394.95
Gain or Loss - 2019 ₱ (704,069.40) ₱ (528,394.95)

₱ ₱
FV, end 4,040,000.00 4,040,000.00
₱ ₱
CA 3,950,000.00 3,798,271.60
Gain or Loss - 2020 ₱ 90,000.00 ₱ 241,728.40

₱ ₱
FV, end 2,955,000.00 2,955,000.00
₱ ₱
CA 3,040,000.00 2,914,133.32
Gain or Loss - 2021 ₱ (85,000.00) ₱ 40,866.68
 ₱ ₱
FV, end 1,995,000.00 1,995,000.00
₱ ₱
CA 1,955,000.00 1,857,063.99
Gain or Loss - 2022 ₱ 40,000.00 ₱ 137,936.01

Checking: FVTPL FVTOCI

Interest Income ₱ 708,000.00 ₱ 532,325.55
₱ ₱
Gain or Loss (704,069.40) (528,394.95)
₱ ₱
3,930.60 3,930.60

Interest Income ₱ 590,000.00 ₱ 438,271.60

₱
Gain or Loss 90,000.00 ₱ 241,728.40
₱ 680,000.00 ₱ 680,000.00

Interest Income ₱ 472,000.00 ₱ 346,133.32

₱ ₱
Gain or Loss (85,000.00) 40,866.68
₱ 387,000.00 ₱ 387,000.00

Interest Income ₱ 354,000.00 ₱ 256,063.99

₱
Gain or Loss 40,000.00 ₱ 137,936.01
₱ 394,000.00 ₱ 394,000.00

Accounting for Debt Investments

On January 1, 2019, Shine Company purchased a 6-year bond with a face amount of P6,000,000 to yield 15%.
Interest and principal is to be paid every December 31. An active market is available so there is no problem to
ascertain the fair value of the bonds. The stated rate of the bond is 13%. The bond is trading:
December 31, 2019 96
December 31, 2020 101
December 31, 2021 98.5
December 31, 2022 99.75
Use four decimal places only.

What is the purchase price of the investment?

PV of Principal 3,784,500 PV of OA n=6 i=15% 1,000,000
PV of Interest 1,920,126 PV of 1
5,704,626

Computation of PV of Interest:
Principal Interest (13%) PV Factor
₱ ₱ ₱
6,000,000.00 780,000.00 0.8696 678,288.00
₱ ₱ ₱
5,000,000.00 650,000.00 0.7561 491,465.00
₱ ₱ ₱
4,000,000.00 520,000.00 0.6575 341,900.00
₱ ₱ ₱
3,000,000.00 390,000.00 0.5718 223,002.00
₱ ₱ 0.4972 ₱
2,000,000.00 260,000.00 129,272.00
₱ ₱ ₱
1,000,000.00 130,000.00 0.4323 56,199.00
₱ 1,920,126.00

What is the Carrying Amount of the investment:

FVTPL FVTOCI AC
12/31/1 4,950,000.0 4,780,319.9
9 0 0
12/31/2 4,040,000.0
0 0
12/31/2 2,955,000.0 2,904,473.0
1 0 7
12/31/2 1,995,000.0 1,950,144.0
2 0 3

Computation of FV:
Principal Trading Fair Value
₱ ₱ ₱
5,000,000.00 0.9900 4,950,000.00
₱ ₱ ₱
4,000,000.00 1.0100 4,040,000.00
₱ ₱ ₱
3,000,000.00 0.9850 2,955,000.00
₱ ₱ ₱
2,000,000.00 0.9975 1,995,000.00

Computation of EIM:
Year Beginning Balance Interest Received Interest Income Repayment Amortization Balance
201 ₱1,000,000.0 ₱4,780,319.9
9 ₱5,704,626.00 ₱780,000.00 ₱855,693.90 0 -₱924,306.10 0
202 ₱1,000,000.0
0 ₱4,780,319.90 ₱650,000.00 ₱717,047.99 0 -₱932,952.02 ₱3,847,367.89
202 ₱1,000,000.0 ₱2,904,473.0
1 ₱3,847,367.89 ₱520,000.00 ₱577,105.18 0 -₱942,894.82 7
202 ₱1,000,000.0 ₱1,950,144.0
2 ₱2,904,473.07 ₱390,000.00 ₱435,670.96 0 -₱954,329.04 3

Interest Income of the investment

FVTPL FVTOCI AC
12/31/1 855,693.9
9 0
12/31/2 650,000.0 717,047.9
0 0 9
12/31/2 577,105.1
1 8
12/31/2 390,000.0 435,670.9
2 0 6

Computation FVTPL:
Principal Interest (13%)
₱
6,000,000.00 ₱ 780,000.00
₱ ₱
5,000,000.00 650,000.00
₱ ₱ 520,000.00
4,000,000.00
₱ ₱
3,000,000.00 390,000.00

Gain or Loss:
FVTPL FVTOCI
(P/L) (OCI)
12/31/1
9 ₱ 245,374.00 ₱ 169,680.10
12/31/2 ₱
0 90,000.00 ₱ 22,952.02
12/31/2 ₱
1 (85,000.00) ₱ (142,105.18)
12/31/2 ₱ ₱
2 40,000.00 (5,670.96)

FVTPL FVTOCI
₱ ₱
FV, end 4,950,000.00 4,950,000.00
₱ ₱
CA 4,704,626.00 4,780,319.90
Gain or Loss - 2019 ₱ 245,374.00 ₱ 169,680.10

₱ ₱
FV, end 4,040,000.00 4,040,000.00
₱ ₱
CA 3,950,000.00 4,017,047.99
Gain or Loss - 2020 ₱ 90,000.00 ₱ 22,952.02

₱ ₱
FV, end 2,955,000.00 2,955,000.00
₱ ₱
CA 3,040,000.00 3,097,105.18
Gain or Loss - 2021 ₱ (85,000.00) ₱ (142,105.18)

₱ ₱
FV, end 1,995,000.00 1,995,000.00
₱ ₱
CA 1,955,000.00 2,000,670.96
₱
Gain or Loss - 2022 ₱ 40,000.00 (5,670.96)

Checking: FVTPL FVTOCI

Interest Income ₱ 780,000.00 ₱ 855,693.90
Gain or Loss ₱ 245,374.00 ₱ 169,680.10
₱ 1,025,374.00 ₱ 1,025,374.00

Interest Income ₱ 650,000.00 ₱ 717,047.99

₱
Gain or Loss 90,000.00 ₱ 22,952.02
₱ 740,000.00 ₱ 740,000.00

Interest Income ₱ 520,000.00 ₱ 577,105.18

 ₱
Gain or Loss (85,000.00) ₱ (142,105.18)
₱ 435,000.00 ₱ 435,000.00

Interest Income ₱ 390,000.00 ₱ 435,670.96

₱ ₱
Gain or Loss 40,000.00 (5,670.96)
₱ 430,000.00 ₱ 430,000.00

Derecognition of Debt Investments

On January 2, 2020, Holy Company invested in a 4-year 10% bond with a face value of P3,000,000 in which interest
is to be paid every December 31. The bonds has an effective interest rate of 8% and was acquired for P3,198,728.
Holy Company has designated the debt instrument as investment at amortized cost. On December 31, 2022, Holy
Company sold the bonds at the prevailing rate of 12%.

What amount of gain or loss should Holy Company recognize on the sale of the security?

Computation of CA:
Year Beginning Balance Interest Received Interest Income Amortization Balance
202
0 ₱3,198,728.00 ₱300,000.00 ₱255,898.24 -₱44,101.76 ₱3,154,626.24
202
1 ₱3,154,626.24 ₱300,000.00 ₱252,370.10 -₱47,629.90 ₱3,106,996.34
202 ₱3,055,556.0
2 ₱3,106,996.34 ₱300,000.00 ₱248,559.71 -₱51,440.29 5

Computation of SP:
PV of Bond 2,946,428.57 PV of 1 n=1 i=12% (3,000,000 + (3,000,000 x 10%))

SP 2,946,428.57
Less: CA 3,055,556.05
Loss 109,127.48

What amount of interest income should Holy Company report in its 2021 statement of income?
252,370.10