Reference no: EM132776053
Questions - PLEASE PROVIDE SOLUTION OR EXPLANATION TO ANSWER
Question 1 - On Nov 3, 2020, Parker Company invests a P2,000,000 in a convertible debt instrument issued by SC Company that pays fixed interest of 7% and that can be converted into 10,000 shares in SC Company in five years at Parker's option. Otherwise the debt will pay P2,000,000 at maturity. At the time of acquisition, the conversion option has a fair value of P260,000. On December 31, 2020, the debt instrument has a fair value of P1,750,000 and the conversion option has a determinable fair value of P300,000. What amount of derivative asset to be reported separately in the statement of financial position assuming the company has a business model with the objective of trading financial assets?
a. None
b. P250,000
c. P260,00
d. P300,000
Question 2 - On October 1, 2020, Parker Company invests P3,000,000 in abound whose interest payments are linked to the price of gold. On October 1, 2020, the derivative contract has a fair value of P150,000. Parker Company has a business model with the objective of trading all financial instruments. What is the carrying value of the available for sale investment on October 1, 2020?
a. P150,000
b. P2,850,000
c. P3,000,000
d. P3,150,000
Question 3 - On January 2, 2020, Parker Company enters into a forward contract to purchase on January 2, 2022, a specified number of barrels of oil at a fixed price. Parker Company does not pay anything to enter into the forward contract on January 2, 2020. Parker Company does not designate the forward contract as a hedging instrument. At the end of 2020, the fair value of the forward contract has increased to P400,000 and at the end of 2021 its fair value has declined to P350,000. What amount of forward loss should Parker Company recognize at the end of year 2021?
a. None
b. P50,000
c. P350,000
d. P400,000
Question 4 - On January 2, 2020, Parker Company enters into a forward contract to purchase on January 2, 2022, a specified number of barrels of oil at a fixed price. Parker Company does not pay anything to enter into the forward contract on January 2, 2020. Parker Company does not designate the forward contract as a hedging instrument. At the end of 2020, the fair value of the forward contract has increased to P400,000 and at the end of 2021 its fair value has declined to P350,000.
Assuming Parker Company is speculating that the price of oil will increase and plans to net settle the contract if the price increases, what amount of forward loss should Parker Company recognize at December 31, 2021 statement of comprehensive income?
a. None
c. P350,000
b. P50,000
d. P400,000
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