PROBLEM #1 At the beginning of the current year, Icon Company acquired bonds with face amount of P4,000,000 at a cost of P3,761,000. The bonds are held for trading. Bonds pay interest of 12% semiannually on January 1 and July 1 and mature on January 1, 2023. The bonds have an effective yield of 14% and are quoted at 105 at year-end. Prepare journal entries for the current year. PROBLEM #2 Mature Company carried out the following transactions in bond investments held for trading during the current year: Aug. 1 Purchased 5,000, P1,000, 12% bonds of Acme Company at 104 plus accrued interest of P150,000. The bonds pay interest semiannually on May 1 and November 1. 31 Purchased 2,000, P1,000, 12% bonds of Avco Company at 98 plus accrued interest. Semiannual payment of interest, June 30 and December 31. Dec. 1 Sold 2,000 of the Acme bonds at 102 plus accrued interest. Brokerage fee, P160,000. 31 The following quotations were obtained: Acme bonds, 98; Avco bonds, 99. REQUIRED: a.) Prepare journal entries to record the transactions. b.) Carrying amount of the investments on December 31. PROBLEM #3 On July 1, 2019, Bearish Company purchased as trading investment a P2,000,000 face amount, 8% bond for P2,200,000 plus accrued interest and commission of P50,000. The bond pays interest annually on December 31. On December 31, 2019, the bond investment was quoted at 95. On March 31, 2020, the entity sold the bond investment for P2,100,000 plus accrued interest. Prepare journal entries for 2019 and 2020. PROBLEM #4 On October 1, 2019, Yost Company purchased 4,000 of the P1,000 face amount, 10% bonds of Pell Company for P4,400,000 which included accrued interest of P100,000. The bonds, which mature on January 1, 2026, pay interest semiannually on January 1 and July 1. The entity used the straight line method of amortization and appropriately recorded bonds as financial asset at amortized cost. Prepare journal entries for 2019 and 2020. PROBLEM #5 On January 1, 2019, Flexible Company acquired for P1,150,000 the entire P1,000,000, 12% bond issue of another entity to be held as financial asset at amortized cost. Bonds of P200,000 mature at annual interval beginning December 31, 2019. Interest is payable semiannually on June 30 and December 31. REQUIRED: a.) Prepare a schedule of amortization following the bond outstanding method. b.) Prepare journal entries for the current year. PROBLEM #6 On January 1, 2019, Demeanor Company purchased bonds with face value of P5,000,000 to held as financial assets at amortized cost. the entity paid P4,600,000 plus transaction costs of P142,000. The bonds mature on December 31, 2021 and pay 6% interest annually on December 31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019. The bonds are sold at 110 on December 31, 2020. REQUIRED: a.) Prepare a table of amortization. b.) Prepare journal entries for 2019 and 2020. PROBLEM #7 On January 1, 2019, a company acquired for P5,241,500 the entire P5,000,000, 12% bond issue of another entity to be held as financial assets at amortized cost. Bonds of P1,000,000 mature at annual interval beginning December 31, 2019. Interest is payable annually on December 31. The bonds have a 10% effective rate. Prepare journal entries for 2019 and 2020 using the effective interest method. PROBLEM #8 Durable Company purchased P3,000,000 face amount bonds for P3,111,510 on January 1, 2019 to be held as financial assets at amortized cost. The bonds carry a nominal rate of 8% payable semiannually on June 30 and December 31. The bonds mature on January 1, 2021 with an effective rate of 6%. REQUIRED: a.) Prepare a table of amortization following the effective interest method. b.) Prepare journal entries for 2019. PROBLEM #9 On January 1, 2019, Agusan Company purchased bonds with face amount of P5,000,000. The business model of the entity in managing the financial asset is not only to collect contractual cash flows that are solely payment of principal and interest but also to sell the bonds in the open market. The entity has not elected the fair value option of measuring financial asset. The entity paid P4,600,000 plus transaction cost of P142,000 for the bond investment. The bonds mature on December 31, 2021 and pay 6% interest annually on December 31 each year with 8% effective yield. In addition, the bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020. The bonds are redeemed at face amount on December 31, 2021. REQUIRED: a.) Prepare a table of amortization. b.) Prepare journal entries for 2019, 2020, and 2021. PROBLEM #10 On January 1, 2019, Reign Company purchased 12% bonds with face amount of P5,000,000 for P5,380,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 2019, mature on January 1, 2024 and pay interest annually on December 31 each year. the bonds are quoted at 120 on December 31, 2019 and 115 on December 31, 2020. The entity has elected the fair value option for the bond investment. Prepare journal entries for 2019 and 2020. PROBLEM #11 At the beginning of the current year, Havoc Company purchased ten-year bonds with a face amount of P5,000,000 and a stated interest rate of 8% per year payable semiannually June 30 and December 31. The bonds were acquired to yield 10%. Present value factors are as follows: Present value of 1 for 10 periods at 10% 0.386 Present value of 1 for 20 periods at 5% O.377 Present value of an annuity of 1 for 10 periods at 10% 6.145 Present value of an annuity for 1 for 20 periods at 5% 12.462 REQUIRED: a.) Compute for the purchase price of the bonds. b.) Prepare journal entries to record transactions for the current year. PROBLEM #12 On January 1, 2019, Labyrinth Company purchased serial bonds with face amount of P3,000,000 and stated 12% interest payable annually every December 31. The bonds are to be held as financial assets at amortized cost with a 10% effective yield. The bonds mature at an annual installment of P1,000,000 every December 31. Present value of 1 at 10% for one period 0.91 Present value of 1 at 10% for two periods 0.83 Present value of 1 at 10% for three periods 0.75 REQUIRED: a.) Compute for the purchase price of the bonds. b.) Prepare journal entries for 2019. The effective interest method of amortization is used. c.) Compute the carrying amount of the bond investment on December 31, 2019.
