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What is the amount of gain or loss should the company

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On January 2, 2020, Senior Company invested in a 4-year 10% bond with a face value of P6,000,000 in which interest is to be paid every December 31. The bonds has an effective interest rate of 9% and was acquired for P6,194,220.

  • During December 2021, the management of Senior Company decided to dispose P4,000,000 face value debt instrument which will be used to settle an obligation and to finance some of its operating costs.
  • The company has a business model of collecting the contractual cash flows for all their debt security investment, however due to frequent sale and disposal of investments the management has decided that the business model is no longer appropriate.
  • On December 31, 2021, the four million face value debt instrument was disposed of when the market rate of similar instrument was 11%. The PV factor of 1 at 11% after 2 years is 0.8116 and the PV factor of ordinary annuity of 1 at 11% after 2 years is 1.7125.

Problem 1: What is the amount of gain or loss should the company recognize in its 2021 profit or loss as a result of the reclassification?

Group of answer choices

Option 1: None (0)

Option 2: 69,418

Option 3: 78,134

Option 4: 96,330

Reference no: EM132679392

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