Reference no: EM132944170
On January 1,2019, RED Company purchased P 1,000,000, 12% bonds of BLUE Company for P 1,063,394, a price that yields 10%. Interest on these bonds is payable every December 31. The bonds mature on December 31,2022. On April 1,2021, to pay a maturing obligation, RED sold P 600,000 face value bonds at 101 plus accrued interest.
Market value of the bonds on different dates is as follows:
December 31,2019 - 108
December 31,2020 - 106
December 31,2021 - 104
Assume the debt investment is intended to speculate on fluctuations of interest or fair value and is held for trading.
Problem 1.) What amount of gain or loss should RED report on the sale of the bond investment on April1,2021?
Option 1: P 12,344 loss
Option 2: P 30,000 loss
Option 3: P30,000 gain
Option 4: P 12,344 gain
Problem 2.) Assume in this problem that the investment is held at amortized Cost. What amount of gain or loss should RED recognize on the sale of investments on April1,2021?
Option 1: P 30,000 gain
Option 2: P 30,000 loss
Option 3: P 12,344 loss
Option 4: P12,344 gain
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