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What amount of cumulative unrealized gain should be reported

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Reference no: EM132949733

Question - On January 1, 2019, an entity purchased bonds with face amount of 5,000,000. The entity paid 4,500,000 plus transaction cost of 168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 of each year with 8% effective yield.

The bonds were quoted at 105 on December 31, 2019 and 110 on December 31, 2020.

The business model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in the open market.

The entity has not elected the fair value option.

On December 31, 2020, the entity changed the business model to collect only contractual cash flows. On December 31, 2021, the bonds are quoted at 115 and the market interest rate is 10%.

Required -

1. What amount of unrealized gain should be reported as component of OCI in the statement of comprehensive income for 2019?

A. 250,000

B. 690,000

C. 507,912

D. 0

2. What amount of cumulative unrealized gain should be reported as component of OCI in the statement of changes in equity for 2020?

A. 500,000

B. 678,545

C. 250,000

D. 875,200

3. What amount of unrealized gain should be reported as component of OCI in the statement of comprehensive income for 2020?

A. 500,000

B. 250,000

C. 170,633

D. 185,200

4. What is the interest income for 2021?

A. 300,000

B. 500,000

C. 385,716

D. 369,984

5. What is the carrying amount of the investment on December 31, 2021?

A. 4,694,784

B. 4,668,600

C. 4,907,171

D. 5,750,000

Reference no: EM132949733

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