Reference no: EM133166322

Question 1 - On Jan. 1, 2021, FAB Company purchased P5M bonds, paid P4.6M plus transaction cost of P142,000. The bonds mature on Dec. 31, 2023 and pay 6% interest annually on Dec. 31 of each year with 8% effective yield. The business model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and interest and to sell the bonds in the open market. The bonds are quoted at 105 on Dec 31,2021 and 110 on December 31,2022.

1. What is the unrealized gain or loss for 2021?

2. What amount of unrealized gain should be reported in the statement of financial position for 2022?

3. What is the interest income for 2022?

Question 2 - On January 1, 2020, Dreams Company purchased P3,000,000 face value bonds at a price of P2,824,800 which will yield an interest rate of 10%. The nominal interest rate on the bonds is 8% payable annually every December 31. The company's business model is to collect contractual cash flows that are solely payments of principal and interest.

On December 31, 2021, Dreams Company changed the business model in managing the bonds from collecting contract cash flows that are solely payments of principal and interest to realizing short term gains. The market value of the bonds on January 1, 2022, is 106.

1. On reclassification date, what amount of gain on reclassification of financial asset should be recognized by Dreams Company?

Question 3 - On June 15, 2020, Jaco Co. own 10,000 shares with a cost of P700,000 of Kreme Co. stocks. During the same period, Kreme issued stock rights to shareholders. Jaco received 10,000 stock rights entitling him to purchase 5,000 new shares at P80. The ordinary share was trading ex-rights at P80 a share and the rights had a market value P20 per right. On July 15, 2020, Jaco exercised all the stock rights. The share is quoted right-on at P90.

1. If the securities are classified as FVTPL, stock rights should be initially recognized at __.

2. If the securities are classified as FVTOCI, stock rights should be initially recognized at __.

3. If the securities are classified as FVTPL, the cost of investment acquired through exercise of rights should be __.

4. If the securities are classified as FVTOCI, the cost of investment acquired through exercise of rights should be __.