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What is the initial cost of the investment

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Reference no: EM133037807

Question - On January 2, 2019, Single Corporation purchased 5-year 10% bonds of Taken Co., with face value totaling to P5,000,000, at 92. Single incurred an additional P39,500 as direct costs, resulting to a yield rate of 12%.

Interest is paid by Taken every December 31.

The bonds are quoted on December 31, 2019, 2020, and 2021, at 95, 99 and 91, respectively. The entity sold the bonds on January 3, 2022 at 92.

Requirements -

Case 1 - The company has a business model of holding the financial asset to collect contractual cash flows consisting of principal payments and interest payments on the outstanding principal.

1. What is the initial cost of the investment?

2. How much is the interest income for 2019, 2020, and 2021?

3. What is the carrying value of the investment on December 31, 2019, 2020, and 2021?

4. How much is the gain or loss on disposal?

5. Prepare the journal entries for 2019 to 2022.

Case 2 - The company has a business model of holding the financial asset to collect contractual cash flows consisting of principal payments and interest payments on the outstanding principal, and to sell the financial asset.

1. What is the initial cost of the investment?

2. How much is the interest income for 2019, 2020, and 2021?

3. How much is the unrealized gain or loss to be presented as a component of other comprehensive income for 2019, 2020, and 2021?

4. How much is the unrealized gain or loss to be presented in the statement of financial position on December 31, 2019, 2020, and 2021?

5. What is the carrying value of the investment on December 31, 2019, 2020, and 2021?

6. How much is the gain or loss on disposal?

7. Prepare the journal entries for 2019 to 2022.

Case 3 - The company carried the financial asset at fair value through profit or loss.

1. What is the initial cost of the investment?

2. How much is the interest income for 2019, 2020, and 2021?

3. How much is the unrealized gain or loss to be presented in profit or loss for 2019, 2020, and 2021?

4. What is the carrying value of the investment on December 31, 2019, 2020, and 2021?

5. How much is the gain or loss on disposal?

6. Prepare the journal entries for 2019 to 2022.

Reference no: EM133037807

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