Chapter #6

Debt Investments

TRUE OR FALSE

1. A debt instrument at FVPL is initially recorded at purchase price plus transaction costs. FALSE
2. Reclassification of debt investments is only allowed when an entity changes its business model for managing its
financial assets. TRUE
3. Debt securities include corporate bonds and convertible debt, but not government securities. FALSE
4. A debt instrument shall be measured subsequently at amortized cost when the business model is to collect contractual
cash flows that are solely payments of principal and interest. TRUE
5. Reclassification shall be made prospectively from the date of reclassification. TRUE
6. If a company transfers debt instruments at amortized cost securities to FVOCI classification, the unrealized gain or loss
is recognized in income. FALSE
7. Unrealized fair value gains and losses are recognized in net income for debt securities at FVOCI. FALSE
8. Debt investments not held for collection are reported at net realizable value. FALSE
9. Debt investment at FVPL is assessed for impairment at each reporting period. FALSE
10. The present value of 1 and present value of an ordinary annuity of 1 are used to compute the price to pay for a bond.
TRUE
11. A change in intention related to a particular financial asset depicts a change in business model. FALSE
12. Trading securities are securities bought and held primarily for sale in the near term to generate income on short-term
price differences. TRUE
13. The interest income for the year would be higher than the nominal interest if the bond was purchased at a premium.
FALSE
14. A bond investment that satisfies the amortized cost measurement may be
designated irrevocably at fair value through profit or loss. TRUE
15. Companies do not report changes in the fair value of debt securities at FVOCI as part of profit or loss until the
security is sold. TRUE
16. Coupon bonds are bonds that can be freely transferred and have a detachable coupon for each interest payment.
TRUE
17. The reversal of impairment loss for debt investment measured at amortized cost shall not result in a carrying
amount of the financial asset that exceeds what the amortized cost would have been had the impairment loss not
been recognized at the date the impairment is reversed. TRUE
18. Zero-coupon bonds do not pay periodic interest; however, interest income is still recognized by the investor. TRUE
19. The Unrealized Fair Value Adjustment account has a normal credit balance. FALSE
20. In IFRS 9, the tainting rule prescribes a two-year time-out period during which an entity in not allowed to classify
any financial assets as amortized cost if the entity has sold, transferred, or reclassified more than an insignificant
amount of these investments before maturity during the current financial year, or during the two preceding financial
years. FALSE
21. Transaction costs incurred in the acquisition of bonds to be measured at amortized cost are included as part of the
cost of the investment. TRUE
22. An impairment loss is the excess of the carrying amount of the debt investment over present value of the expected
cash flows. TRUE
23. When transaction costs are incurred, it may result to the adjustment in the effective interest rate. TRUE
24. The Unrealized Holding Gain/Loss—FVOCI account is reported as a part other comprehensive income. TRUE
25. The interest income for debt securities is always computed at bond carrying amount multiplied by the original
effective interest rate. FALSE
26. A reclassification adjustment is necessary when a company reports realized gains/losses as part of net income but
also shows unrealized gains/losses as part of other comprehensive income. TRUE
27. When bonds are acquired at a discount, the effective interest rate is greater than the nominal rate. TRUE
28. Accrued interest on bonds that are purchased between interest dates decreases the amount the seller receives.
FALSE
29. Callable bonds are bonds containing call provisions giving the issuer thereof the right to redeem the bonds prior to
their maturity date. TRUE
30. Companies report trading securities at fair value, with unrealized holding gains and losses reported in net income.
TRUE

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MULTIPLE CHOICE
FINANCIAL ACCOUNTING THEORY

1. Debt investments at amortized cost are reported after initial recognition at.
A. acquisition cost.
B. fair value.
C. amortized cost using straight-line
D. amortized cost using effective interest method.

2. Under PFRS 9, the classification of debt of

A. the business model for managing
B. contractual cash flow characteristics
C. management's intention of holding the debt instruments.
D. both the business model for managing the financial asset and the contractual cash flow characteristics of the
financial asset.
3. An investor purchased debt investments at amortized Cost on January 1. Annual interest was received on December
31. The investor's interest income for the year would be lower than the annual interest received if the debt instrument
was purchased at
A. a discount.
B. a premium.
C. par.
D. face value.

4. A debt investment at fair value through profit or loss is reclassified to debt investment at amortized cost. What
amount is used at the transfer date to record the security in the amortized cost classification?
A. At amortized Cost at date of reclassification
B. At fair value at date of reclassification and difference between carrying amount and fair value is taken to profit or
loss.
C. At fair value at date of reclassification and difference amount and fair value is taken to other Comprehensive
income
D. At fair value at date of reclassification

5. Interest revenue for debt investments at fair value through profit or loss is computed based on the instruments'
A. carrying amount using the effective interest
B. carrying amount using the nominal interest
C. face value using the effective interest rate.
D. face value using the nominal interest rate.

6. Interest revenue for debt investments at amortized cost is computed based on the instruments
A. carrying amount using the effective interest rate.
B. carrying amount using the nominal interest rate.
C. face value using the effective interest rate.
D.face value using the nominal interest rate.

7. When there is an objective evidence of impairment in value of debt investments measured at amortized cost,
the carrying amount of the asset shall be reduced either directly or through the use of an allowance and the
amount of the loss shall be
A. ignored.
B. recognized in equity.
C. recognized in profit or loss.
D. deferred until the date of derecognition.

8. If in subsequent period, there is objective evidence of recovery in impairment previously recognized for
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 debt investments measured at amortized cost, the amount of the reversal
A. shall not be recognized.
B. shall be recognized in profit or loss.
C. shall be recognized in equity.
D. shall be recognized when the asset is derecognized.

9. No amortization of premium or discount is required for this class of debt investment.

A. At amortized cost and at fair value through profit or loss
B. At amortized cost
C. At fair value through profit or loss
D. Neither at amortized cost nor at fair value through profit or loss

10. How is the premium or discount on debt investments at fair value through profit or loss accounted for?
A. As part of amortized cost and amortized over the life of the bonds.
B. As part of the cost until the disposal of the asset.
C. As expense or revenue in the period the bonds are purchased.
D. All of the above.

11. All of the following are characteristics of debt securities, except

A. They have a maturity value.
B. They have an interest rate that specifies the periodic interest payment.
C. They have a maturity date.
D. They have a conversion privilege.

12. The use of the effective interest method in amortizing bond premium and discount results in
A. a varying amount being recorded as interest income from period to period
B. uniform/constant amount of interest income from period to period.
C. varying rate of interest being recorded as interest income from period to period.
D. amount of interest income similar to the interest received from period to period.

13. The interest income reported for a debt investment at amortized cost initially acquired at a premium is equal to
A. the effective interest rate multiplied by the face amount of the bond investment
B. the stated interest rate multiplied by the face amount of the bond investment
C. the effective interest rate multiplied by the carrying amount of the bond investment at the beginning of
the year
D. the stated interest rate multiplied by the carrying amount of the bond investment at the beginning of
the year

14. Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable semi-annually on
March 1 and September 1 were purchased on August 1. The total payments made for the purchase
amounted to P5,200,000. The best explanation for the excess amount paid over par value is that
A. the bonds were purchased at a premium.
B. the bonds were purchased at a discount plus accrued interest.
C. the bonds were purchased at par value plus accrued interest.
D. no explanation is possible without knowing the maturity date of the bond issue.

15. For an investment in debt securities portfolio at amortized cost, which of the following amounts should be included
in the period's profit or loss?
I. Gains and losses during the period as a result of change in fair value.
II. Amortization of discount or premium
III. Interest received and accrued

A. I and II
B. III
C. II and III
D. I and III

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16. Which of the following is correct about the effective-interest method of amortization?
A. The effective interest method applied to investments in debt securities is different from that applied to
bonds payable.
B. Amortization of a discount decreases from period to period.
C. Amortization of a premium decreases from period to period.
D. The effective-interest method produces a constant rate of return on the carrying amount of the
investment from period to period.

17. Securities which could be classified as amortized cost are

A, preferred stock.
B. warrants.
C. municipal bonds.
D. treasury stock.

18. When an investor's accounting period ends on a date that does not coincide with an
interest receipt date for bonds held as an investment, the investor must
A. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue
for the amount of interest accrued since the last interest receipt date.
B. notify the issuer and request that a special payment be made for the appropriate
portion of the interest period.
C. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue
for the total amount of interest to be received at the next interest receipt date.
D. do nothing special and ignore the fact that the accounting period does not coincide
with the bond's interest period.

19. Which of the following is not correct in regard to trading securities?

A. They are held with the intention of selling them in a short period of time.
B. Unrealized holding gains and losses are reported as part of net income.
C. Any discount or premium is not amortized.
D. All of these are correct.

20. An investor purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield
8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for
A. 10 periods and 10% from the present value of 1 table.
B. 10 periods and 8% from the present value of 1 table.
C. 20 periods and 5% from the present value of 1 table.
D. 20 periods and 4% from the present value of 1 table.

21. Which of the following is not generally correct about recording a sale of a debt security before maturity
date?
A. Accrued interest will be received by the seller even though it is not an interest payment date.
B. An entry must be made to amortize a discount to the date of sale.
C. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in
Debt Securities.
D. A gain or loss on the sale is not extraordinary.

22. Companies that attempt to exploit inefficiencies in various derivative markets by attempting to lock in
profits by simultaneously entering into transactions in two or more markets are called
A. arbitrageurs.
B. gamblers.
C. hedgers
D. speculators.

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23. Which of the following is generally not a purpose for acquiring investments?
A. As a main source of income
B. To establish long-term relationship with suppliers and customers
C. To acquire control or significant influence over another entity
D. To accumulate funds for future use.

24. Which of the following financial assets are assessed for impairment?
A. Equity investments at FVPL
B. Equity investments at FVOCI
C. Debt investments at FVPL
D. Debt investments at amortized cost and debt investments at FVOCI.

25. Impairments of debt investments at amortized cost are

A. recognized as component of OCI.
B. based on fair value for nontrading investments.
C. based on discounted contractual cash flows.
D. evaluated at each reporting date.

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 PRACTICAL FINANCIAL ACCOUNTING

A. On January I, 2021, F Company purchased 5-year bonds with face value of P8,000,000 and stated interest of 10% to
per year payable semi-annually January 1 and July 1. The bonds were acquired to yield 8%. Present value factors are:

PV of an annuity of 1 for 5 periods at 8% - 3.993

PV of 1 for 5 periods at 8% - 0.681
PV of an annuity of 1 for 10 periods at 4% - 8.111
PV of 1 for 10 periods at 4% - 0.676

1. What is the purchase price of the bonds?

A. P8,000,000
B. P8,642,400
C. P8,652,400
D. P8,662,400

2. Assuming that the bonds pay interest annually every December 31 (instead of
semi-annually), all other data being the same, how much is the bond price?
A. P8,000,000
B. P8,642,400
C. P8,652,400
D. P8,662,400

B. On January 1, 2021, Scruffy Company purchased eight-year bonds with a face value of P2,000,000 and stated interest
rate of 12%, payable semi-annually on June 30 and December 31. The debt investments were purchased to yield 14%.
Present value (PV) factors are:

12% 14% 6% 7%
PV of 1 for 8 periods 0.4039 0.3506 0.6274 0.5820
PV of 1 for 16 periods 0.1631 0.1229 0.3936 0.3387
PV of annuity of 1 for 8 periods 4.9676 4.6389 6.2098 5.9713
PV of annuity of 1 for 16 periods 6.9740 6.2651 0.1059 9.4466

3. What is the purchase price for the debt investment?

A. P1,163,080
B. P1,810,992
C. P1,814,536
D. P2,000,000

C. On October I, 2021, Ghregny Company purchased as debt investments at value through profit or loss, P 100,000, 14%
bonds of Hampyn Company for 99 plus accrued interest and broker's fees. Interest is paid semi-annually on February
1 and August 1. Broker's fees incident to this purchase amounted P500.

4. How much was the total cash payment in the acquisition of the debt investments on October 1, 2021?
A. P101,833.33
B. P101,333.33
C. P99,500.00
D. P99,000.00

5. What is the amount of interest revenue reported by Ghregny on this bond investment in the 2021 statement
of comprehensive income?
A. P0
B. P3,465
C. P3,483
D. P3,500

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D. On January 1, 2021, Meigmax Company purchased Mixzen Corporation, P 1,000,000, 12% bonds for P 1,065,000, a
price that yields 10%. The bonds pay interest semi-annually every January 1 and July 1 and they mature on January 1,
2025. At December 31, 2021, each P 1,000 bond is selling at P 1,055.

6. Assuming that the securities are classified as debt investments at amortized cost, what is the carrying amount
of the debt investment reported on December 31, 2021 statement of financial position?
A. P1,065,000
B. P1,058,250
C. P1,055,000
D. P1,051,163

7. Assuming that the securities are classified as debt investments at amortized cost, what is the interest
revenue from the bond investment for the year 2021?
A. P106,500
B. P106,163
C. P120,000
D. P127,800

8. Assuming that the securities are classified as debt investments at fair value through profit or loss, what is the
carrying amount of the debt investment reported on December 31, 2021 statement of financial position?
A. P1,065,000
B. P1,055,000
C. P 1,051,163
D. P 1,000,000

9. Assuming that the securities are classified as debt investments at fair value through profit or loss, what is the
interest revenue from the bond investment for the year 2021?
A. P120,000
B. P106,000
C. P106,163
D. P100,000

E. On January 1, 2021, Sprigmawn Company purchased Broangy Corporation, 9% bonds with a face value of P4,000,000
for P3,756,000. The debt investments are carried at amortized cost. The effective interest rate at that time is 10%. The
bonds are dated January 1, 2021 and mature on December 31, 2030. The bonds pay interest annually on December
31. Market quotation for the debt securities at December 31, 2021 is 99

10. What is the revenue for the year 2021?

A. P4,000,000
B. P377,160
C. P375,600
D. P360,000
11. What is the carrying amount of the debt investment at amortized cost at December 21, 2021?
A. P4,000,000
B. P3,756,000
C. P3,788,760
D. P3,771,600

12. Assuming that the debt investment is designated as at fair value through other comprehensive income. How
much is the unrealized gain (loss) reported in other comprehensive income for the year 2021?
A. P188,400
B. P171,240
C. P204,000
D. P40,000

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F. Ecstasy Company purchased P8,000,000, 11%, 5-year bonds on April 1, 2021, when the market interest was 10%.
The financial instruments meet the business model test and are classified as debt investments at amortized cost. The
bonds are purchased at P8,295,000 and pay interest annually on March 31. Ecstasy Company uses the effective
interest method of amortization and its accounting year ends on December 31.

13. At how much were the debt investments reported in the December 31, 2021 and December 31, 2022
statement of financial position?
A. P8,244,500 and P8,188,950
B. P8,295,000 and P8,244,500
C. P8,257,125 and P8,202,837
D. P8,257,125 and P8,188,950

14. How much is the interest revenue reported in Ecstasy Company's statement of comprehensive income for the
year ended December 31, 2021 and December 31, 2022?
A. P829,500 and P824,450
B. P622,125 and P825,713
C. P880,000 and P880,000
D. P622,125 and P824,450

G. On January 1, 2021, Grow Company purchased P1,000,000, 12% bonds of Glow Company for P1,063,394, a price that
yields 10%. Interest on these bonds is payable every December 31. The bonds mature on December 31, 2024. On
April 1, 2023, to pay a maturing obligation, Grow sold face value bonds at 101 plus accrued interest.

Market value of the bonds on different dates is as follows:

December 31, 2021 108

December 31, 2022 106
December 31, 2023 104

Assume that the debt investment is intended to speculate on fluctuations of interest or fair value and is held
for trading.

15. How much is the interest income for the year ended December 31, 2021 ?
A. P127,607
B. P120,000
C. P106,399
D. P100,000

16. What amount of gain or loss should Grow report on the sale of the bond investment on April 1, 2023?
A. P30,000 gain
B. P30,000 loss
C. P12,344 gain
D. P12,344 loss

17. At what amount should the bond investments be shown on December 31, 2022 and December 31, 2023
statement of financial position?
A. P1,000,000 and P400,000
B. P1,034,706 and P1,018,177
C. P1,000,000 and P416,000
D. P1,060,000 and P416,000

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 Assume that the company intended to collect the principal and interest over the term of the bonds and
designated the investment at amortized cost. (An amortization table is presented below for convenience

Interest Interest Effective Amort. Of Carrying

Date Due Premium Amount
01/01/21 1,063,394
12/31/21 120,000 106,339 13,661 1,049,733
12/31/22 120,000 104,973 15,027 1,034,706
12/31/23 120,000 103,471 16,529 1,018,177
12/31/24 120,000 101,823* 18,177 1,000,000
*Adjusted due to round off.

18. At what amount should the debt investments be shown in December 31, 2022 statement of financial position?
A. P1,000,000
B. P1,063,394
C. P1,034,706
D. P1,049,733

19. What amount of gain or loss should Grow recognize on the sale of investments on April 1, 2023?
A. P12,344 gain
B. P12,344 loss
C. P30,000 gain
D. P30,000 loss

20. What amount of interest income will be taken to profit or loss for the year ended December 31, 2023?
A. P120,000
B. P103,471
C. P61,868
D. P56,909

21. At what amount should the bond investment be shown on December 31, 2023 statement of financial position?
A. P400,000
B. P407,271
C. P416,000
D. P600,000

Assume that at initial recognition, the investment is held in the business model of collecting
contractual cash flows and selling the financial assets; hence recognized as debt investment at fair
value through other comprehensive income.

22. At what amount should the debt investment be reported in the December 31, 2022 of financial position?
A. P1,060,000
B. P1,000,000
C. P1,034,706
D. P1,049,733

23. How much is the unrealized gain/loss taken to other comprehensive income for the year 2021?
A. P30,267 Loss
B. P30,267 Gain
C. P80,000 Loss
D. P80,000 Gain

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 24. How much is the unrealized gain/loss taken to other comprehensive income for the year 2022?
A. P4,973 Loss
B. P4,973 Gain
C. P25,294 Gain
D. P25,294 Loss

H. On July 1, 2021, Clincox Company purchased as debt investments at amortized cost, Enreign Corporation's
10-year, 8% bonds with a face amount of P1,000,000 for P840,000. The bonds pay interest semi-annually on
June 30 and December 31. Clincox recorded bond discount amortization of P3,600 for the six months ended
December 31, 2021.

25. How much is the interest revenue of Clincox from this investment in 2021?
A. P33,600
B. P36,400
C. P40,000
D. P43,600

I. On January 1, 2021, Braugman Company purchased as debt investments at amortized cost, P2,000,000 of Epvaign
Companys 8% bonds for P 1,812,000. The bonds were purchased to yield 10% interest. The bonds mature on
January 1, 2031 and pay interest semi-annually on January 1 and July 1. Braugman uses the effective interest
method of amortization.

26. In its December 31, 2021 statement of comprehensive income, what amount should Braugman report as
interest revenue?
A. P200,000
B. P181,730
C. P181,200
D. P160,000

J. On January 1, 2020, Bretzign Company purchased as debt investments at amortized cost, P 1,000,000 face value
of Bautzen, Inc.'s 8% bonds for P912,400. The bonds were purchased to yield 10%. The bonds mature on January
1, 2026 and pay interest annually on January 1. Bretzign uses the interest method of amortization.

27. What amount (rounded to nearest P100) should Bretzign report as debt investments at amortized cost on
December 31, 2021 statement of financial position?
A. P912,400
B. P923,600
C. P932,400
D. P936,000

28. What is the interest revenue reported by Bretzign from this investment for the year ended December 31,
2021?
A. P80,000
B. P91,240
C. P91,521
D. P92,360

K. On July 1, 2020, Sprakenheit Company purchased as debt investments at fair value through profit or loss, P500,000
face value Swazzeg, 8% bonds for P455,000 plus accrued interest. The bonds mature on January 1, 2025 and pay
interest annually on January 1. On December 31, 2020, the bonds have a market value of P472,500. On February 14,
2021, Sprakenheit sold the bonds for P460,000.

29. On its December 31, 2020 statement of financial position, what amount should Sprakenheit report as debt
investments at fair value through profit or loss?
A. P455,000
B. P457,750
C. P460,000
D. P472,500

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 30. What is the interest revenue reported by Sprakenheit for the year 2020?
A. P15,000
B. P18,000
C. P20,000
D. P22,750

31. What is the gain or loss on the sale of the debt investment in 2021?
A. P5,000 gain
B. P12,500 loss
C. P40,000 gain
D. P0

L. Pragheux Company purchased debt investments at amortized cost at a discount of P20,000. Subsequently, Pragheux
sold these bonds at a premium of P28,000. During the period that Pragheux held this investment, amortization of
discount amounted to P4,000.
32. What amount should Pragheux report as gain on the sale of the debt investment?
A. P24,000
B. P44,000
C. P48,000
D. P52,000

M. On January 1, 2020, Vivacompenhagen Company purchased bonds with a face value of P3,000,000 for
P3,108,000 to yield 12%. The bonds are due on December 31, 2024 and carry a 13% interest rate. Interest is
receivable annually on December 31.

On June 30, 2021, one-half of the bonds Were sold for P 1,595,000 plus accrued interest. After the disposal, the
company changed its business model for managing its financial assets and is now actively trading its portfolio. At
December 31, 2021, the bonds were quoted at 101.

33. What is the gain on the sale of the bond investment?

A. P95,000
B. P54,291
C. P49,250
D. P41,000

34. What is the carrying value of the remaining bond investment reported in Vivacompenhagen's December 31,
2021 statement of financial position?
A. P1,556,250
B. P1,541,250
C. P1,526,250
D. P1,515,000

N. On June 1, 2021, Schrouck Company purchased debt investments at amortized cost, 8,000 of P1,000 face value,
8% bonds of Spark Company for P7,383,000. The bonds were purchased to yield 10% interest. Interest is payable
semi- annually on December 1 and June 1. The bonds mature on June 1, 2026. Schrouck uses the effective interest
method of amortization. On June 1, 2022, Schrouck sold the bonds for P 7,850,000. This amount includes the
appropriate accrued interest.

35. What is the gain or loss on the sale of the debt investment?
A. P368,700
B. P366,240
C. P48,700
D. P46,240

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 36. If Schrouck’s accounting year is the calendar year (ending on
December 31) , how much is the interest revenue for the year ended
December 31, 2021?
A. P320,000
B. P369,150
C. P371,608
D. P431,085

O. On July 1, 2021, Lay Company purchased term bonds of Beef Company for a total amount of P3,050,000 which
included direct transaction costs of P 100,000 and appropriate accrued interest. The face value of the bonds was
P3,000,000 and the coupon rate is 10%. The bonds will mature on December 31, 2025 and pay interest annually
on December 31. Because of market opportunities, Beef bonds were classified as debt investments at fair value
through profit or loss by Lay Company. The bonds are quoted at 105 on December 31, 2021.

37. What is the unrealized gain to be recognized in Lay Company's profit or loss for the year 2021?
A. P50,000
B. P200,000
C. P250,000
D. P350,000

P. On December 31, 2020, Smith Company purchased debt investments at amortized cost, P3,000,000 serial bonds
with a nominal rate of 10% and effective rate at that time is 13%. Bonds with a face value of P1,000,000 mature on
December 31, 2021 and every December 31 thereafter. Present value factors at 13% are as follows: 1 period – 0.885;
2 periods - 0.783; 3 periods 0.693.

38. What is the initial cost of the debt investment?

A. P2,586, 000
B, P2,852,400
C. P3,000,000
D. P3,001,900

39. What is the carrying amount of the debt investment on December 31, 2021?
A. P1,923,212
B. P2,852,400
C. P2,923,212
D. P3,000,000

Q. On January 1, 2020, Well Company purchased 3,000, P1,000 face value term bonds with a stated rate of 10%
as at amortized cost. The bonds pay interest annually on December 31 and will be redeemed entirely by the
issuer on December 31, 2023. The bond investment was purchased for P2,819,100 at an effective rate of 12%.

On December 31, 2021, the entity changed business model for managing its financial assets and this
investment was reclassified as debt investments at fair value through profit or loss. On this date, the
bonds are quoted at 101.

40. What is the carrying value of the debt investment on December 31, 2021 prior to reclassification?
A. P3,030,000
B. P3,000,000
C. P2,900,279
D. P2,857,392

41. What is the amount at which the debt investments at fair value through profit or loss shall be recorded upon
reclassification on December 31, 2021?
A. at market value of P3,030,000 and the difference between market value and amortized cost is taken to
equity
B. at market value of P3,030,000 and the difference between market value and amortized cost is taken to
profit
or loss
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 C. at amortized cost
D. at face value

42. What is the amount taken to profit or loss as a result of the reclassification?
A. P129,721
B. P210,900
C. P 30,000
D. P 99,721

R. Power Company purchased the following securities during 2021:

Feb. 1 Blossom ordinary shares, 2,000 shares for P374,000. The shares represent 2% of the total
outstanding shares of Blossom.

April 1 10% treasury bonds due April 1, 2031; interest is payable April 1 and October 1; 100 of P 10,000 face
value bonds purchased @ 100

July 1 Buttercup 12% bonds, P 150,000, face value dated March 1, 2021; purchased at face value plus
accrued interest. Interest is payable annually on March 1. The bonds are due on March 1, 2031

The fair values at December 31, 2021 are as follows:

Blossom ordinary shares 190

10% treasury bonds 99
Buttercup 12% bonds 102

All of these securities are classified as debt investments at fair value through profit or loss.

43. How much total income shall Power report for the year 2021 as a result of its holdings in the above securities?
A. P(1000)
B. P83,000
C. P84,000
D. P89,000

S. On January 1, 2020, Desiree Company purchased bonds with face value of P5,000,000 designated as at amortized
cost. The company paid P4,742,000. The bonds mature on December 31, 2022 and pay 6% interest annually on
December 31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2020. The bonds
are sold at 110 on December 31, 2021.

44. What amount of gain on sale on these bonds should be reported in the 2021statement of
comprehensive income?
A. P758,000
B. P592,000
C. P500,000
D. P250,000

T. Palazzo Company purchased of P4,000,000 of 10% bonds of Sapphire Company on January 1, 2021, paying
P3,761,000. The bonds mature January 1, 2029; interest is payable each July 1 and January 1. The discount of
P239,000 provides an effective yield of 11%. Palazzo Company uses the effective-interest method and appropriately
carries this debt investment at amortized cost.

45. For the year ended December 31, 2021, Palazzo Company should report interest revenue from the Sapphire
bonds of
A. P376,000
B. P411,087
C. P414,087
D. P400,000

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