Reference no: EM132943594

RED Company had the following transactions in bond investment held as trading for the current year:

April 1 - Purchased 2,000, P1,000, 12% bonds of Orange Company at 92 excluding accrued interest. Interest is payable on February 1 and August 1

April 30 - Purchased 3,000, P1,000, 10% bonds of Yellow Corporation at 96 plus accrued interest. Interest is payable March 1 and September 1

October 1 - Sold 1,200 of the Yellow bonds at 103 excluding interest

November 30 - Sold 70% of the Orange bonds at 90 plus accrued interest

December 31 - The market value of ORANGE bonds is 88; YELLOW Bonds is 105

REQUIREMENTS:

Problem 1. At what amount should RED initially record its investment in Orange Company?

Problem 2. At what amount should RED initially record its investment in Yellow Corporation?

Problem 3. How much gain or (loss) should be recognized on the sale of Yellow bonds?

Problem 4. How much gain or (loss) should be recognized on the sale of Orange bonds

Problem 5. How much unrealized gain or loss is to be recognized in the income statement for the current year?

Problem 6. How much is the interest income at year end?

Problem 7. What is the total carrying value of the investment in bonds at year end 2020?