Reference no: EM132818150
On January 2, 2020, DOSAN CORPORATION purchased a 10-year 9% $5,000,000 bonds of DALMI, Inc. for an amount resulting to a yield rate of 10%. Interest is collected by DOSAN every December 31. The effective rate of the bonds on December 31, 2020, December 31, 2021, and December 31, 2022, are 8%, 12%, and 11%, respectively. (Use four decimal places for PV factors; i.e. x.xxx)The business model of the entity is to collect contractual cash flows at specified dates, wherein the cash flows are in the form of principal and interest payments on the principal amount, and to sell the investment.
Problem 1: What is the carrying value of the investment as of December 31, 2021?
a. $4,528,990
b. $4,756,310
c. $4,733,010
d. $4,254,920
Problem 2: Provided that the entity decided to change its business model on December 31, 2021 to collect contractual cash flows only, what will be the carrying value of the investment as of December 31, 2021?
a. $4,733,010
b. $4,528,990
c. $4,756,310
d. $4,254,920
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