Professional Documents
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Problems On Financial Assets
Problems On Financial Assets
Problems On Financial Assets
Problem 1: On January 1, 2017, Gilberto Company purchased 9% bonds with a face amount of P 4,000,000 for P 3,756,000 to yield
10%.
The bonds are dated Jan 1, 2017, mature on Dec 31, 2026 and pay interest annually on Dec 31. The interest method of amortizing
bond discount is used.
Problem 2: On July 1, 2017, East Company purchased as a long-term investment P 5,000,000 face amount, 8% bonds of Rand
Company for P 4,615,000 to yield 10% per year. The bonds pay semiannually on Jan 1 and Jul 1.
4. On Dec 31, 2017, how much is the carrying value of the bonds?
Problem 3: On Jan 1, 2017, Tagbiliran Company purchased bonds with face amount of P 2,000,000. The bonds are dated Jan 1, 2017
and mature on Jan 1, 2021.
The interest on the bonds is 10% payable semiannually every 30 and Dec 31. The prevailing market rate of interest on the bonds is
12%.The present value of 1 at 6% for 8 periods is .63 and the V of an ordinary annuity of 1 at 6% for 8 periods is 6.21.
Problem 4: On Jan 1, 2017, Michelle Company purchased bonds with face amount of P 5,000,000. The entity paid P 4,600,000 plus
transaction cost of P 142,000.The bonds mature on Dec 31, 2019 and pay 6% interest annually on Dec 31 of each year with 8%
effective yield.
The bonds are quoted at 106 on Dec 31, 2017 and 110 on Dec 31, 2018.
The business model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and
interest and also to sell the bonds in the open market.
8. What amount of unrealized gain should be reported as component of other comprehensive income for 2017?
9. What is the interest income for 2018?
10. What cumulative amount of unrealized gain should be reported as component of OCI in the statement of changes in equity
for 2018?
Problem 5: On Jan 1, 2017, Gerry Company purchased 6% bonds in the face amount of P 4,000,000. The bonds mature on Jan 1,
2022 and were purchased for P 3,530,000 to yield 10%.
The entity classified the bonds as held for trading and interest is payable annually every Dec 31.
On Jan 1, 2018, the fair value of the bonds did not change.