Date Interest Received Interest Income

1-Jul-16
31-Dec-16 50,000.00 47,920.00

Face Value 1,000,000.00

Nominal rate 10%
100,000.00
July 1- December 31 6/12
INTEREST RECEIVED 50,000.00

On July 1, 2016, Chicago Company purchased as a long-term investment of P1,000,000 face value
including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bond
December 31. The effective interest method of amortization is used. What is the carrying amoun
December 31, 2016?

Date Interest Received Interest Income

1-Jul-16
31-Dec-16 40,000.00 45,300.00

Face Value 1,000,000.00

Nominal rate 8%
80,000.00
July 1- December 31 6/12
INTEREST RECEIVED 40,000.00

On January 1, 2016, Silver Company purchased bonds with face amount of P8,000,000 for P7,67
The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature
annually every December 31 and the interest is payable annually also every December 31. The e
method of amortizing discount. What is the carrying amount of the bond investment on Decemb

Date Interest Received Interest Income

1-Jan-16
31-Dec-16 800,000.00 921,480.00
 Face Value 8,000,000.00
Nominal rate 10%
INTEREST RECEIVED 800,000.00

Carrying Amount 7,679,000.00

Effective rate 12%
INTEREST INCOME 921,480.00

On January 1, 2016, Hermis Company purchased 12% bonds with face amount of P5,000,000 fo
transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated
January 1, 2021 and pay interest annually on December 31 of each year. The bonds are quoted
The entity has irrevocably elected to use the fair value option.
 
What amount of gain from change in fair value should be reported for 2016?
What amount of interest income should be reported for 2016?

Purchase price 5,500,000.00

Less:Transaction cost 100,000.00
Adjusted cost 5,400,000.00

Market value December 31, 2016 (5,000,000 x 115%)

Adjusted cost
Gain from change in fair value

Face Value 5,000,000.00

In fair value option, interest income is based
Nominal rate 12% than the effective rate
INTEREST INCOME 600,000.00

PV of the principal (8,000,000 x 0.68)

PV of future interest payments (400,000 x 8.11)
Present value of the bond/acquisition cost/purhase price

Date Interest Received Interest Income

1-Jan-16
Jan 1, 2016- June 30, 2016 400,000.00 345,952.00
July 1, 2016- December 31, 2016 400,000.00 343,790

Face Value 8,000,000.00

Nominal rate 10%
800,000.00
Jan 1, 2016- June 30, 2016 6/12
 INTEREST RECEIVED 400,000.00

Face Value 8,000,000.00

Nominal rate 10%
800,000.00
July 1, 2016- December 31, 2016 6/12 July 1, 2016- December 31, 2016
INTEREST RECEIVED 400,000.00

Principal due on Dec. 31, 2016

Interest received on Dec. 31, 2016 (3,000,000 x 12%)
Total cash flows- December 31, 2016

Principal due on Dec. 31, 2017

Interest received on Dec. 31, 2017 (2,000,000 x 12%)
Total cash flows- December 31, 2017

Principal due on Dec. 31, 2018

Interest received on Dec. 31, 2017 (1,000,000 x 12%)
Total cash flows- December 31, 2018

December 31, 2016 payment (1,360,000 x .91)

December 31, 2017 payment (1,240,000 x .83)
December 31, 2018 payment (1,120,000 x .75)
Total purchase price of the serial bonds
 Premium Amortization Carrying Amount

1,198,000.00
2,080.00 1,195,920.00

Carrying Amount 1,198,000.00

Effective rate 8%
95,840.00
July 1- December 31 6/12
INTEREST INCOME 47,920.00

m investment of P1,000,000 face value 8% bonds for P946,000

chased to yield 10% interest. The bonds pay interest annually on
n is used. What is the carrying amount of the investment in bonds on

Discount Amortization Carrying Amount

906,000.00
5,300.00 911,300.00

Carrying Amount 906,000.00

Effective rate 10%
90,600.00
July 1- December 31 6/12
INTEREST INCOME 45,300.00

face amount of P8,000,000 for P7,679,000 to be held to maturity.

uired to yield 12%. The bonds mature at the rate of P2,000,000
nually also every December 31. The entity used the effective interest
nt of the bond investment on December 31, 2016?

Discount Amortization Principal Payment Carrying Amount

7,679,000.00
121,480.00 2,000,000.00 5,800,480.00
 Interest Income 921,480.00
Interest Received 800,000.00
Discount Amortization 121,480.00

nds with face amount of P5,000,000 for P5,500,000 including

tive yield of 10%. The bonds are dated January 1, 2016, mature on
1 of each year. The bonds are quoted at 115 on December 31, 2016.
tion.

reported for 2016?

2016?

5,750,000.00
5,400,000.00
350,000.00

value option, interest income is based on nominal rate rather

e effective rate

5,404,800.00
3,244,000.00
8,648,800.00

Premium Amortization Carrying Amount

8,648,800.00
54,048.00 8,594,752.00
56,210 8,538,542

Carrying Amount 8,648,800.00

Effective rate 8%
691,904.00
July 1- December 31 6/12
 INTEREST INCOME 345,952.00

Carrying Amount 8,594,752.00

Effective rate 8%
687,580.16
July 1, 2016- December 31, 2016 6/12
INTEREST INCOME 343,790

1,000,000.00
360,000.00
1,360,000.00

1,000,000.00
240,000.00
1,240,000.00

1,000,000.00
120,000.00
1,120,000.00

1,237,600.00
1,029,200.00
840,000.00
3,106,800.00