Problem 1

On June 1, 2015, Leony Corporation purchased as a long term investment 4,000 of the P1,000 face
value, 8% bond of Green Corporation. The bonds were purchased to yield 10% interest. Interest is payable
semi-annually on December 1 and June 1. The bonds mature on June 1, 2021. Leony uses the effective
interest method of amortization. On November 1 2016, Leony sold the bonds for a total consideration of
P3,925,000. Leony intended to hold the bonds until they matured, so year-to-year market fluctuations
were ignored in accounting for the bonds.

Required: Compute for the following:

1. The purchase price of the bonds on June 1, 2015 _____________

2. The interest income for the year 2015 ________________
3. The carrying value of the investment in bonds as of December 31, 2015 ______________
4. Interest income for the year 2016 _________________
5. The gain on sale of investment in bonds on November 1, 2016 ____________