Reference no: EM132725712
Problem 1 - Purchase of Debt Investment and Subsequent Measurement
On July 1, 2020, Tuguegarao Company purchased as a long term investment P8,000,000 of Candon Company's 8% bonds for P7,570,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on December 31. Tuguegarao uses the interest method.
In its December 31, 2020 balance sheet, what amount should Tuguegarao report as investment in bonds using Amortized Cost?
In its December 31, 2020 balance sheet, what amount of interest income is recognized?
Problem 2 - Derecognition of Debt Investments
On January 2, 2020, Holy Company invested in a 4-year 10% bond with a face value of P3,000,000 in which interest is to be paid every December 31. The bonds has an effective interest rate of 8% and was acquired for P3,198,728. Holy Company has designated the debt instrument as investment at amortized cost. 011 December 31, 2022, Holy Company sold the bonds at the prevailing rate of 12%.
What amount of gain or loss should Holy Company recognize on the sale of the security?
What amount of interest income should Holy Company report in its 2021 statement of income?