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Compute the loss on reclassification

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Reference no: EM132886096

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Q1. On January 1, 2020, Soledad Company purchased 10% bonds with face amount of3,000,000. The bonds mature on January 1, 2030 and were purchased for 3,405,000 to yield 8%.

The entity used the effective interest method of amortization and interest is payable annually every December 31.

The business model for this investment is to collect contractual cash flows composed of interest and principal.

On December 31, 2021, the entity changed the business model for this investment to realize fair value changes.

On January 1, 2022, the fair value of the bonds was P2,845,000 at an effective rate of 11%.

Compute the loss on reclassification.

Q2. On January 1, 2020, Royalty Company purchased 9% bonds with face amount of 6,000,000.

The bonds mature on January 1, 2025 and were purchased for P5,550,000 to yield 11%.

The entity classified the bonds as held for trading and interest is payable annually every December 31.

The entity provided the following information about fair value of the bonds and effective rate:

 

Fair value

Effective rate

Dec. 31, 2020

5,450,000

12%

Dec. 31, 2021

6,150,000

8%

On December 31, 2021, the entity changed the business model for this investment to collect contractual cash flows composed of principal and interest.

On January 1, 2022, the fair value of the bonds did not change.

1. What is the interest income for 2020?

2. Amount of unrealized loss to be recognized in profit or loss in 2020?

3. Amount of unrealized gain to be recognized in profit or loss in 2021?

4. What is thee interest income for 2022?

Reference no: EM132886096

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