EASTERN VISAYAS STATE UNIVERSITY
COLLEGE OF BUSINESS AND
ENTREPRENEURSHIP ACCOUNTANCY
DEPARTMENT
TACLOBAN
CITY
INVESTMENT IN BONDS & BOND MARKETS
SET A. Answer as required.
Situatio
nI
On October 1, 2021, Yorme Company purchased 4,000 of the P1,000 face value, 10% bonds of Willie
Company for P4,400,000 which includes accrued interest of P100,000. The bonds, which mature on January 1,
2028, pay interest semiannually on January I and July 1. Yorme Company used the straight-line method of
amortization and appropriately recorded the bonds as long-term investment. What is the carrying amount
of the bonds on December 31, 2021?
Situatio
n II
PacQ Company purchased bonds at a discount of P100,000. Subsequently, PacQ sold these bonds at a
premium of P140,000. During the period that PacQ held this long-term investment, amortization of the
discount amounted to P20,000. What amount should be reported as gain on the sale of bonds?
Situation
III
On October 1, 2021, Ping Company purchased P2,000,000 face value 12% bonds for 98 plus accrued interest
and brokerage fee. Interest is paid semiannually on January I and July 1. Brokerage fee for this transaction
was P50,000. At what amount should this acquisition of bonds be recorded?
Situation
IV
On January 1, 2021, Digs 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%. Present
value factors are:
Present value of an annuity of 1 for 10 periods at 5%
Present value of an annuity of 1 for 10 periods at 4%
Present value of 1 for 10 periods at 4%
7.72
8.11
0.6756
1. What is the purchase price of the bonds?
2. What is the carrying amount of the bond investment on December 31, 2021?
Situatio
nV
On January 1, 2021, Trililing Company purchased bonds with face value of P5,000,000 at a cost of P4,700,000
to be held as financial asset at amortized cost. The stated interest is 10% payable annually every December 31.
The bonds mature in 4 years or January 1, 2025. What amount of interest income should be reported for the
year ended December 31, 2021, under the effective interest method?
SET B. Fill in the blanks. Fill the missing word/s.
1. Bonds have ________ while stocks are perpetual unless sold, redeemed, or disposed of.
2. Value of the bond is less ___________ than stocks as its price and terms are known in advance.
3. Bond market is a collective name for the trade of debt _________________.
4. _____________bonds are issued through the Bureau of the Treasury.
5. _____________bons are issued by private firms.
SET C. True or False. Write true if the statement is correct. Otherwise, write false.
1. Dividend paid is the cost of debt financing.
2. Bail bonds are good investments.
3. Callable bonds are those that may be redeemed prior to maturity.
4. Convertible bonds are classified as serial bond.
5. Unlike stocks, bonds do not have default risk.
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