Reference no: EM132833018
PROBLEM 1 - ABC Corp acquired a three-year, 12% bonds with a face value of 1,000,000 on January 1, 2019. The bonds which pay annual interest every December 31 had a 10% prevailing interest rate on the date of acquisition. The investment was appropriately classified as available for Sale Security. The present value factor of 1 at 10%, ordinary annuity, for 3 periods is at 2.486852 while the present value factor of 1 at 10% for 3 periods is at 0.751315. On December 31, 2019, the prevailing interest for similar securities is at 11%, thus the fair market value of the bonds is at 1,017,125. On March 31, 2020, the bonds were sold at 1,250,000.
REQUIRED -
1. What is the unrealized holding gain loss to be recognized in the balance sheet as of December 31, 2019?
2. What is the correct interest income to be reported in the 2019 income statement?
3. How much is the correct realized gain or loss on sale of the investment in 2020?
PROBLEM 2 - XYZ Co. owns a tract of land which it purchased in 2019 for 1,000,000. The land is held as a future plant site and has a fair market value of 1,500,000 on July 1, 2018. ABC Company also owns a tract of land held as a future plant site. ABC paid 1,800,000 for the land in 2020 and the land has a fair market value of 2,000,000 on July1. On this date XYZ exchanged its land and paid 500,000 cash for the land owned by ABC. The expected cash flows from asset received differ from the cash flows expected from the asset transferred and the difference is significant relative to the fair value of land given up.
REQUIRED -
1. How much should the property be initially recognized?
2. How much is the gain or loss from the exchange transaction?
3. Assuming that the cash flows expected from the assets exchanged are not materially different, how much should the property be initially recognized?
PROBLEM 3 - The following transactions pertain to ABC Company.
1. Purchased 20,000 ordinary shares of 100 par of XYZ Company for 2,000,000 on January 1, 2019. This purchase represents 20% interest in the net assets of XYZ, which are fairly valued at 8,000,000. The shares give ABC Company significant influence over XYZ.
2. XYZ reported profit of 1,500,000 for 2019.
3. In 2020, ABC received a 10% bonus issue from XYZ.
4. XYZ reported profit of 3,000,000 for 2020.
5. XYZ paid a cash dividend of 1,000,000 on the ordinary shares at December 15, 2020.
Required -
How much is the carrying amount of the investment at December 31, 2020?