Reference no: EM132853387
On January 1, 2020, Covid Company purchased P1,000,000, 12% bonds of Lugaw Company for P1,063,394, a price that yields 10%. Interest on these bonds is payable every December 31. The bonds mature on December 31, 2023. On April 1, 2022, to pay a maturing obligation. Covid sold P600,000 face value bonds at 101 plus accrued interest.
Market Value of the bonds on different dates is as follows:
December 31, 2020 108
December 31, 2021 106
December 31, 2022 104
Assume that the company intended to collect the principal and interest over the term of the bonds and did not choose the fair value option.
Problem 1: At what amount should the bond investments be shown on December 31, 2021 statement of financial position?
Problem 2: What amount of gain or loss should Covid recognize on the sale of investments on April 1, 2022? Indicate whether GAIN or LOSS.
Problem 3: What amount of interest income will be taken to profit or loss for the year ended December 31, 2022?
Problem 4: At what amount should the bond investments be shown on December 31, 2022 statement of financial position?