Reference no: EM133188035

Question - AICPA Adapted - On January 1, 2020, Aguilar Corporation purchased bonds with a face value of P4,000,000 for P3,649,600 in order to collect contractual cash flows that are solely payments of principal and interest. The bonds are purchased to yield 10% interest. The nominal interest rate on the bonds is 8% payable annually every December 31. On December 31, 2021, as a result of a change in the business model for managing financial assets, the entity decided to reclassify the bonds from amortized cost to fair value. On that date, the carrying amount of the bond investment is P3,744,016 after discount amortization using the effective interest method. The market value of the bonds on January 1, 2015, is 10%.

Required -

1. Prepare the necessary journal entries to record the transactions.

2. Using the same information, except that the change is from fair value to amortized cost, prepare the necessary journal entries to record the transactions.

3. What if, initially, the investment is classified at FVTPL, then subsequently changed it to FVTOCI, prepare the necessary journal entries to record the transactions. Assume that the bond is for 5 years on the date of acquisition.