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How much is the interest income to be recognized

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Question - On January 1, 2014, WELL Inc. purchased the bonds of SM Inc. for P6,000,000. WELL paid transaction costs totaling P211,451. The objective of the business model of WELL Inc. is to hold assets in order to collect contractual cash flows from principal and interest. The face value of the bonds is P6,000,000 which is payable in three equal installments every December 31. The interest of 10% is also payable annually every December 31. The applicable effective interest rate of this serial bond is 8%.

1. What is the carrying value of the bonds Investment in Bonds on December 31, 2014?

a. P6,108,367

b. P4,108,367

c. P4,708,367

d. P5,203,981

2. Using the same data in preceding number, how much is the interest income to be recognized by WELL Inc. for the year 2015?

a. P328,669

b. P400,000

c. P376,669

d. P416,318

Reference no: EM132797929

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