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Financial asset at amortized cose
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Chapter 40
Financial Asset at Amortized Cost
Bond investment
Problem 40-1 (AICPA Adapted)
On July 1, 2016, Cody Company paid ₱1,198,000 of 10%, 20-year bonds with a face amount
of ₱1,000,000. Interest is paid on June 30 and December 31.
The bonds were purchased to yield 8%. The effective interest method is used to recognize
interest income from this long-term investment.
What is the carrying amount of the investment in bonds on December 31, 2016?
a.
b.
c.
d.
1,207,900
1,198,000
1,195,920
1,193,050
Problem 40-2 (AICPA Adapted)
On January 1, 2016, Purl Company purchased as a long-term investment ₱5,000,000 face
value of Shaw Company’s 8% bonds for ₱4,562,000. The bonds were purchased to yield
10% interest.
The bonds mature on January 1, 2021 and pay interest annually on December 31. The
interest method of amortization is used.
1. What is the interest income for 2017?
a.
b.
c.
d.
456,200
461,820
400,000
369,456
2. What is the carrying amount of the bond investment on December 31, 2017?
a.
b.
c.
d.
4,680,020
4,662,000
4,618,200
4,562,000
Problem 40-3 (AICPA Adapted)
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On July 1, 2016, York Company purchased as a long-term investment ₱1,000,000 of Park
Company’s 8% bonds for ₱946,000, including accrued interest of ₱40,000. The bonds were
purchased to yield 10% interest.
The bonds mature on January 1, 2022 and pay interest annually on January 1. York
Company used the effective interest method of amortization.
1. What is the interest income 2016?
a.
b.
c.
d.
80,000
90,600
45,300
40,000
2. On December 31, 2016, what is the carrying amount of the investment in bonds?
a.
b.
c.
d.
911,300
916,600
953,300
960,600
Problem 40-4 (IAA)
On January 1, 2016, Portugal Company purchased bonds with face value of ₱8,000,000 for
₱7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds
are acquired to yield 12%.
The bonds mature at the rate of ₱2,000,000 annually every December 31 and the interest is
payable annually also every December 31. The entity used the effective interest method of
amortizing discount.
1. What is the interest income for 2016?
a.
b.
c.
d.
800,000
921,480
960,000
767,900
2. What is the carrying amount of the investment in bonds on December 31, 2016?
a.
b.
c.
d.
5,759,250
7,759,250
7,800,480
5,800,480
Problem 40-5 (AICPA Adapted)
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On July 1, 2016, East Company purchased as a long-term investment ₱5,000,000 face
amount, 8% bonds of Rand Company for ₱4,615,000 to yield 10% per year. The bonds pay
interest semiannually on January 1 and July 1.
On December 31, 2016, what amount should be reported as interest receivable?
a.
b.
c.
d.
184,600
200,000
230,750
250,000
Problem 40-6 (AICPA Adapted)
On July 1, 2016, Pell Company purchased Green Company ten-year 8% bonds with a face
amount of ₱5,000,000 for ₱4,200,000. The bonds mature on June 30, 2026 and pay interest
semiannually on June 30 and December 31.
Using the interest method, the entity recorded bond discount amortization of ₱18,000 for
the six months ended December 31, 2016.
What amount should be reported as interest income for 2016?
a.
b.
c.
d.
168,000
182,000
200,000
218,000
Problem 40-7 (AICPA Adapted)
On January 1, 2016, Gilberto Company purchased 9% bonds with a face amount of
₱4,000,000 for ₱3,756,000 to yield 10%. The bonds are dated January 1, 2016, mature on
December 31, 2025 and pay interest annually on December 31. The interest method of
amortizing bond discount is used.
1. What amount should be reported as interest revenue for 2016?
a.
b.
c.
d.
338,040
360,000
375,000
400,000
2. What amount should be reported as interest revenue for 2017?
a. 400,000
b. 375,600
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c. 360,000
d. 377,160
Problem 40-8 (AICPA Adapted)
Jent Company purchased bonds at a discount of ₱100,000. Subsequently, Jent sold these
bonds at premium of ₱140,000.
During the period that Jent held these long-term investment, amortization of the discount
amounted to ₱20,000.
What amount should be reported as gain on the sale of bonds?
a.
b.
c.
d.
120,000
220,000
240,000
260,000
Problem 40-9 (AICPA Adapted)
On October 1, 2016, Danica Comapy purchased ₱2,000,000 face value 12% bonds for 98
plus accrued interest and brokerage fee. Interest is paid semiannually on January 1 and
July. Brokerage fee for this transaction was ₱50,000.
At what amount should this acquisition of bonds be recorded?
a.
b.
c.
d.
1,960,000
2,010,000
2,020,000
2,070,000
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