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The document outlines various scenarios involving investments in debt securities, including calculations of interest income, carrying values, and unrealized gains/losses for different companies. It presents multiple-choice questions assessing the correctness of statements related to these investments. Each scenario provides specific financial details and market values to evaluate the performance of the investments over time.

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Rosalie Milanes
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18 views4 pages

Far 3

The document outlines various scenarios involving investments in debt securities, including calculations of interest income, carrying values, and unrealized gains/losses for different companies. It presents multiple-choice questions assessing the correctness of statements related to these investments. Each scenario provides specific financial details and market values to evaluate the performance of the investments over time.

Uploaded by

Rosalie Milanes
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
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FINANCIAL ACCOUNTING and REPORTING (FAR)

HANDOUT #3: FAR-03


TOPIC: INVESTMENT IN DEBT SECURITIES

1. On January 1, 2023, Beng Company purchased 2,000 of the P1,000 face value, 9%, 10-year bonds of
White Company. Snow Company paid a broker’s fee of P100,000. The bonds mature on January 1, 2033,
and pay interest annually beginning December 31, 2023. Snow Company purchased the bonds to yield
11% and classified this as Investment at Fair value through Profit or Loss.

PV factor of 11% after 10 years 0.3522


PV factor of 9% after 10 years 0.4224
PV factor of annuity of 11% after 10 years 5.8890
PV factor of annuity of 9% after 10 years 6.4180

Market values of the bonds are as follows:


December 31, 2023 95
December 31, 2024 98

I. The interest Income for the year 2023 is 180,000.


II. The carrying value of the investment that should be reported in the Statement of Financial Position on
December 31, 2024 is 1,960,000.00.
III. Quoted Price is essential consideration for investment in debt securities.
IV. The unrealized gain/loss that should be reported in the Profit/Loss Statement for the year 2023 is
135,580.00

A. All Statement is correct B. All Statement is wrong


C. Only Statement III is wrong D. Statement I and IV is correct

2. On May 1, 2024, Untouchable Company purchased a P2,000,000 face value 9% debt instruments for
P1,860,000 including accrued interest. The debt instruments pay interest semi-annually on January 1 and
July 1. On December 31, 2024, the fair value of the instruments is P1,940,000. The investment was
designated as Investment at FVPL.

I. The interest income for the year 2024 amounts to 180,000.


II. The amount of unrealized gain/loss that should be taken to Profit or Loss for the year 2024 is 140,000.
III. Accrued Interest is excluded in the Initial Cost of a debt investment in the date of acquisition.
IV. Accrued Interest/Interest Receivable on December 31, 2024 amounted to 90,000.

Which of the following is not incorrect?


A. Statement II and IV only B. Statement I, II, III only
C. Statement II and III only D. Statement II, III, and IV only
3. On June 30, 2024, Chance Company purchased P4,000,000 of 16% bonds to yield 14% for P4,280,752.
Interest is payable semiannually on June 30 and December 31. The bonds mature in five years. Grumpy
Company uses the calendar year and the effective interest method of amortization. The investment was
designated as Investment at FVOCI.

Market values of the bonds on different dates are as follows:


December 31, 2024 108
December 31, 2025 106

I. The amount of unrealized gain or loss shall be taken to OCI on December 31, 2024 is 59,595.00
II. The amount of interest income for the year ended December 31, 2025 is 594,932.00
III. The amount of unrealized gain or loss that should be presented in the Statement of Financial Position
on December 31, 2025 is 24,663.00

A. All Statement is correct B. All Statement is wrong


C. Only Statement III is wrong D. Statement I and II are wrong

4. That’s When Company acquired on January 1, 2024 a 5 year, 10%, P5,000,000 face value bonds, for
P4,639,400 dated January 1, 2024. The bonds which pay interest every December 31 had a 12% prevailing
interest rate on the date of acquisition. Happy's business model is to collect contractual cash flows and
the cash flows are solely payment of principal and interest. The prevailing interest rate on December 31,
2024 is 9%.

I. The correct interest income for the year 2025 is 500,000.


II. The carrying value of the investment that should be reported in the Statement of Financial Position on
December 31, 2024 is 4,696,128.00.
III. The amount of amortized cost of the Investment on December 31, 2028 is 4,910,714.

A. All Statement is correct B. All Statement is wrong


C. Only Statement I is wrong D. Statement II and III are wrong
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