Reference no: EM132783502
AKALI CompanyBased on the Company's assessment, the bonds are intended to have a "collect and sell" AKALI Company, a multinational multimedia company, decided to acquire bond investments during year 2020. On January 1, 2020, AKALI acquired bonds issued by AHRI Company amounting with a face amount of 7,300,000. The bonds were issued on January 1, 2020 and the whole amount is expected to be fully paid on December 31, 2022. The bonds carry 7% interest to be paid annually every December 31 and the bonds are expected to yield at 8%. There are no transaction costs incurred upon acquisition and the acquisition price is equal to the present value of future cash flows of the bonds. business model and evidently, it passed the contractual cash flows test. AKALI also intended not to irrevocably designate such bonds at fair value through profit or loss.
When computing for the present value of the bonds at acquisition date, AKALI decided not to round off the PV factors.
Based on the active markets, the following are the fair value quotes of the bonds as of the end of 2020 and 2021:
@97 as of December 31, 2020
@98 as of December 31, 2021
On June 1, 2022, the bonds were sold at 103 plus any accrued interest. Accordingly, any gain on sale of bond investment will be recognized by AKALI.
Problem 1: Based on AKALI's computation, the acquisition cost or present value of bonds as of January 1, 2020 is? (Round off the PV factor to 4 decimal places and round off the answer to nearest whole number)
Problem 2: Based on AKALI's computation, interest income to be recognized for 2020 should be? (Round off the answer to nearest whole number)
Problem 3: AKALI's cumulative unrealized gain on fair value changes on other comprehensive income as of December 31, 2021 should be ? (Round off the answer to nearest whole number)
Problem 4: On June 1,2022, AKALI should receive cash from sale at what amount ? (Round off the answer to nearest whole number)
Problem 5: On June 1,2022, AKALI should recognize gain on sale of investment at what amount? (Round off the answer to nearest whole number)
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