Reference no: EM132882378
Questions -
Q1. On January 1, 2020 Complex Company purchased bonds with face amount of 5,000,000.
The entity paid 4,500,000 plus transaction cost of P 168,600.
The bonds mature on December 31, 2023 and pay 6% interest annually on December 31 of each year with 8% effective yield.
The bonds are quoted at 105 on December 31, 2020 and 110 on December 31, 2021. The business model in managing the financial asset is to collect contractual cash flows and also to sell the bonds in the open market.
The entity has not elected the fair value option.
On December 31, 2021, the entity changed the business model to collect only contractual cash flows.
On December 31, 2022, the bonds are quoted at 115 and the market rate of interest is 10%.
1. What is the unrealized gain for 2020?
2. What is the unrealized gain for 2021?
Q2. On January 1, 2020, Myopic Company purchased bonds with face amount of for P 1,900,000 including transaction cost of P 100,500.
The business model for this investment is to collect contractual cash flows which are solely payments of principal and interest.
The entity did not elect the fair value option. The bonds mature on December 31, 2022 and pay 8% interest annually every December 31 with a 10% effective yield.
On December 31, 2020, the entity changed the business model for this investment to collect contractual cash flows and to sell the financial asset in the open market.
The bonds are quoted at 110 on January 1, 2021 and 120 on December 31, 2021.
What is the unrealized gain for 2020?