Bsa 1

1. On May 1, 2012, Bola Company purchased a short-term P2,000,000 face value,

9% debt instruments for P1,860,000 including the accrued interest and classified
it as an investment to profit or loss security. The debt instruments mature on
January 1, 2015, and pay interest semi-annually on January 1 and July 1. On
December 31, the fair market value of the instruments is 98%. On March 2, 2013,
Bola Company sold the trading security for P1,980,000.

At what amount should the investment be initially recorded?

a. P1,800,000
b. P1,845,000
c. P1,860,000
d. P2,000,000

ANSWER: A

Amount Paid P1,860,000

Accrued Interest ( 60,000)
Fair value at initial recognition P1,800,000

2. On April 1, 2012, Bebe bank purchased as a temporary investment P100,000,

face amount, 10%, BSP treasury notes with interest payments set semi-annually
on January 1 and July 1. The notes were purchased at 102 excluding accrued
interest.

Which of the following entries correctly records this purchase?

a. Trading Securities- 10% BSP Treasury Notes 100,000

Interest Receivable 2,500
Premium on Trading Securities 2,000
Cash 104,500

b. Trading Securities- 10% BSP Treasury Notes 102,000

Interest Receivable 2,500
Cash 104,500

c. Trading Securities- 10% BSP Treasury Notes 100,000

Interest Receivable 4,500
Cash 104,500
d. Trading Securities- 10% BSP Treasury Notes 102,000
Cash 102,000

ANSWER: B
 Cost of the trading security (P100,000 x 102%) P102,000
Interest Receivable (P100,000 x 10% x 3/12) 2,500
Total cash paid P104,500

3. On May 1, 2014, Parokya Company purchased a debt security having a face

value of P2,000,000 with an interest rate of 9% for P2,100,000 including the
accrued interest. Parokya Company has a business model with the objective of
collecting all the contractual cash flows of debt securities. The bonds mature on
January 1, 2019, and pay interest semi-annually on January 1 and July 1. On
December 31, 2014, the bonds had a market value of P2,205,000.

What amount should Parokya report for short-term investment in debt securities
at initial recognition?

a. P2,000,000
b. P2,040,000
c. P2,100,000
d. P2,205,000

ANSWER: B

Amount Paid P2,100,000

Less: Accrued interest (Jan. 1 to May 1)
(P2000,000 x 9% x 4/12) 60,000
Acquisition Cost P2,040,000

4. On October 1, 2014, Adidas Company purchased a debt security having a face

value of P3,000,000 with an interest rate of 10% for P3,200,000 including the
accrued interest. A total of P50,000 was incurred and paid by Adidas Company
which is in relation to the acquisition of the debt instrument. Adidas Company has
a business model that collect all contractual cash flows for interest and principal
payments. The bonds mature on January 1, 2019, and pay interest semi-annually
on January 1 and July 1. On December 31, 2014, the bonds had a market value
of P3,400,000.

What amount should Adidas report for investment in debt securities?

a. P3,125,000
b. P3,175,000
c. P3,200,000
d. P3,250,000

ANSWER: B

Total cash paid for the instruments P3,200,000

 Less: Accrued interest for 3 months
(3,000,000 x 10% 3/12) 75,000
Cash paid for the debt instruments 3,125,000
Add: Transaction costs 50,000
Historical cost P3,175,000

5. On January 1, 2014, Bella Company purchased a 10-year, 10%, P3,000,000 face

value bonds for 110 incurring incidental transaction cost of P36,000. Interests are
received semi-annually on January 1 and July 1. Bella Company has a business
model of collecting all contractual cash flows of debt instruments.

What is the total carrying value of bonds on January 1, 2014?

a. P3,000,000
b. P3,264,000
c. P3,300,000
d. P3,336,000

ANSWER: D

Purchase price (P3,000,000 x 110%) P3,300,000

Add: Transaction costs 36,000
Total carrying value date of acquisition P3,336,000