Chapter 20 Compilation

PROBLEM 20-1
REQUIREMENT 1
DATE INTEREST RECEIVED INTEREST INCOME

1/1/2020
12/31/2020 160,000 190,050
12/31/2021 160,000 193,055
12/31/2021 160,000 196,395
REQUIREMENT 2
2020
Jan-01 Investments in bonds 1,900,500
Cash
Dec-31 Cash 160,000

Interest Income
31 Investment in bonds 30,050

Interest Income
2021
Dec-31 Cash 160,000
Interest Income

Interest Income
2022
Dec-31 Cash 160,000
Interest Income

Interest Income
31 Cash 2,000,000
Investment in bonds
DISCOUNT AMORTIZATION CARRYING AMOUNT
1,900,500
30,050 1,930,550
33,055 1,963,605
36,395 2,000,000
1,900,500
(2,000,000 * 8% = 160,000)
160,000
30,050
(2,000,000 * 8% = 160,000)
160,000
33,055
(2,000,000 * 8% = 160,000)
160,000
36,395
2,000,000
Problem 20-2 Demeanor Company
1. Prepare a table of amortization of the discount.
Date Interest
Interest
Re Income
Discount
(CAAmortization
x Carrying
8%) Amount
(IR-II) CA+DA)
1-Jan-20 4,742,000
31-Dec-20 300,000 379,360 79,360 4,821,360
31-Dec-21 300,000 385,709 85,709 4,907,069
31-Dec-22 300,000 392,931 92,931 5,000,000
2. Prepare journal entries for 2020 & 2021

2020
Jan. 01 : Investment In Bonds 4,742,000
Cash 4,742,000
Dec. 31 : Cash
Interest In 300,000 300,000
Investment In Bonds 79,360

2021
Dec. 31 : Cash 300,000
Interest Income 300,000

Dec. 31 : Cash 5,500,000

Investment In Bonds 4,907,069
Gain on sale of bond 592,931
Selling Price (5M x 110%) 5,500,000
Carrying Amount, Dec. 31, 2021 4,907,069
592,931
DATE 12% Interest received 15% Interest income Discount Amortization
Feb.1, 2020
Feb.1 to Jan 31, 2021 720,000.00 822,900.00 102,900.00
Feb.1 to Jan 31, 2022 720,000.00 838,335.00 118,335.00
REQUIREMENT A.
2020
Feb-01 Investment in bonds 5,486,000.00
Cash 5,486,000.00
Acquisation of the bonds.
Dec-31 Accrued interest receivable 660,000.00

Interest income 660,000.00
(720,000x11/12)
Adjustment for accrued interest
for eleven months .
Dec-31 Investment in bonds 94,325.00

(102,900 x 11/12)
Amortization discount for 2020.
REQUIREMENT B.
2021
May-01 Investment in bonds
(118,335 x 3/12) 29,583.75
Amortization discount for 2021.
May-01 Cash 6,480,000.00

Invetsment in bonds 5,618,483.75
Gain on sale of bonds 681,516.25
Sale of all bond.
COMPUTATION
Selling price (6,000,000 x 105%) 6,300,000.00
Add: Interest income (6,000,000x12%x3/12) 180,000.00
Cash 6,480,000.00
Carrying amount Feb. 1, 2021 5,588,900.00

Add: Interest in bonds May 1 29,583.75
Carrying amount May 1, 2021 5,618,483.75
Selling price (6,000,000 x 105%) 6,300,000.00

Less: Invetment in bonds May 1 5,618,483.75
Gain on sale of bonds 681,516.25
Carrying Amount
5,486,000.00
5,588,900.00
5,707,235.00
Problem 20-4 Fancy Company
Required: Journal Entry
2020
Jan-01 Investment in bonds 8,598,400 Investment in bonds
Cash 8,598,400 8,400,000 + 198,400 = 8,598,
Dec-31 Cash 960,000 Interest Received/Income

Interest Income 960,000 8,000,000 x 12% = 960,000
Dec-31 Interest Income 100,160 Premium Amortization

Investment in bonds 100,160 960,000 - 859,840 = 100,160
Investment in bonds
8,400,000 + 198,400 = 8,598,400
Interest Received/Income Interest Income

8,000,000 x 12% = 960,000 8,598,400 x 10% = 859,840
Premium Amortization
960,000 - 859,840 = 100,160
Problem 20-5 Flexible Compnay
2020
Jan.1 Invenstement in Bond5,241,500
Cash 5,241,500
Dec.31 Cash (5,000,000 x 12 600,000

Dec.31 Interest Income 75,850 Interest Received 600,000

Investment in Bonds 75,850 Interest Income (10% x 5,241,50 524,150
Premium Amortization 75,850
Dec.31 Cash 1,000,000
Investment in Bonds 1,000,000
2021
Dec.31 Cash (4,000,000 x 12 480,000
Dec.31 Interest Income 63,435 Interest Received 480,000

Investment in Bonds 63,435 Interest Income (10% x 4,165,65 416,565
Dec.31 Cash 1,000,000
Investment In Bonds 1,000,000
Pano nakuha yung 4,165,650 sa computation above:
Carrying Amount 5,241,500
Less: ###
Principal Amortization -75,850
4,165,650
PROBLEM 20-6
1. JOURNAL ENTRY
A Investment in bonds 7,679,000
Cash 7,679,000
B Cash (8,000,000 x 10%) 800,000

Interest income 800,000
C Investment in bonds 121,480

Interest expense (7,679,000 x 12%) 921,480

Interest paid (8,000,000 x 10%) -800,000
Discount amortization 121,480
B Cash 2,000,000
Investment in bonds 2,000,000
2
Cash 7,679,000
Discount amortization 121,480
Annual installments -2,000,000
Carrying amount 12/31/2020 5,800,480
1. Prepare an amortization table for the discount.
DATE INTEREST RECEIVED INTEREST INCOME DISCOUNT AMORTIZATION

January 1, 2020 - - -
December 31,2020 300000 379360 79360
December 31,2021 300000 385,709 85,709
December 31,2022 300000 392,931 92,931
2. Prepare journal entries for 2020, 2021, and 2022.
2020
January 1 Financial Asset @FVOCI 4,742,000
Cash 4,742,000
December 31 Cash 300,000

Financial Asset @FVOCI 79,360


Unrealized gain - OCI 428,640
2021


2022

Cash 5,000,000
Financial Asset @FVOCI 5,592,931
CARRYING AMOUNT
4,742,000
4,821,360
4,907,069
5,000,000
Fair Value 5,250,000

Gain 428,640
Fair Value 5,500,000

Gain 164,291
Carrying amount 5,000,000

Add:
Financial Asse 428,640
Financial Asse 164,291
Financial Ass 5,592,931
Problem 20-8
Reign Company
2020
1-Jan Financial Asset - FVPL 5,380,000
Cash
31-Dec Cash ( 12% * 5,000,000) 600,000

Interest Income
31-Dec Financial Asset - FVPL 620,000

Gain Change
(5,000,000 x 1.2) 6,000,000

(5,380,000)
620,000
2021
31-Dec Cash ( 12% * 5,000,000) 600,000
Interest Income
31-Dec Loss from change in fair value 250,000

Financial Asset - FVPL
( 5,000,000 x 1.15) (5,750,000)

6,000,000
250,000
5,380,000
600,000
620,000
600,000
250,000
PROBLEM 20-9 (Havoc Company)
A. Compute the market price of the bonds.
PV of principal (5,000,000 x 0.377) 1,885,000

PV of future interest payments (200,000 x 12.462) 2,492,400
Markt price of bonds 4,377,400
Semiannual nominal interest payment ( 5,000,000 x 4 200,000
B. Prepare journal entries for the current year.
Jan 1 Investment in bonds 4,377,400

Cash 4,377,400
Aquisition of the bonds
June 30 Cash 200,000

Semiannual interest received
Investment in bonds 18,870

Amortization of discount
Dec 31 Cash 200,000

Semiannual interest received

Amortization of discount
Date Interest reInterest i AmortizatiCarrying amount
Jan 1 4,377,400
June 30 200,000 218,870 18,870 4,396,270
Dec 31 200,000 219,814 19,814 4,416,084
Problem 20-10
GIVEN:
Face Amount 40000000
Nominal Rate 16%
Effective Rate 12%
Annual Interest every Dec. 31
Date of Acq Jan-01
PV OF 1 for 5 periods @12% . 567
PV OF an annuity of 1 for 5 periods @12% 3. 605
PREMIUM ER<NR
REQ. A :
MARKET
PRICE OF
BONDS
MARKET PRICE = PV of Principal + PV of Future
Interest Payments
=(400000
0*. 567) 2268000
=(4000000*. 567) 2268000

=(640000*3. 605) 2307200
MARKET PRICE 4575200
JEST COMPANY
requirments:
a. Compute the market price of the bonds.
b. Pepare journal entries for the current year. The effective interest method of amortization is used.
c. Compute the carrying amount of the bond investment at year-end.
present value of an annuity of 1 for 10 periods at 5%

present value of an annuity of 1 for 10 periods at 4%
present value of 1 for 10 periods at 4%
req. a
present value of principal (8,000,000 x 0.6756)

present value of semiannual interest (400,000 x 8.11)
market price of the bonds
req. b
1-Jan investment in bonds 8,648,800

interest income 8,648,800
#
1-Jul cash 400,000

interest income 400,000
#
1-Jul interest income 54,048

investment in bonds 54,048
#
31-Dec accrued interest receivable 400,000

interest income 400,000
#
31-Dec interest income 56,210

investment in bonds 56,210
#
ation is used.
7.72
8.11
0.6756
5,404,800
3,244,000
8,648,800
EFFECTIVE INTEREST M
date interest received interest income

1-Jan --- ---
1-Jul-21 400,000 345,592
31-Dec-21 400,000 343,790
CTIVE INTEREST METHOD - PREMIUM
premium amortization carrying amount

--- 8,648,800
54,048 8,594,752
56,210 8,538,542 req. c
RQ1
Principal Payment 1,000,000
Interest Payment (3,000,000 x 12%) 360,000
Total Payment on December 31, 2020 1,360,000


December 31, 2020 payment (1,360,000 x .91) 1,237,000

December 31, 2021 payment (1,240,000 x .83) 1,029,200
December 31, 2022 payment (1,120,000 x .75) 840,000
Total present value on January 1, 2020 3,106,800
RQ3
Acquisition Cost- 1/1/2020 3,106,800
Premium Amortization for 2020 (49,320)
Annual Installment (1,000,000)
Carrying amount of investment- 12/31/2020 2,057,480
RQ2 Journal Entries
2020
1-Jan Investment in bonds 3,106,800
Cash 3,106,800
31-Dec Cash 360,000

31-Dec Interest Income 49,320

Interest received 360,000

Interest Income (3,106,800 x 10%) 310,680
31-Dec Cash 1,000,000

Investment in bonds 1,000,000
Problem 20 -14
Sale of bonds - Premium 140,000

Unamortized discount (100,000 - 20,000) 80,000
Gain on sale of bonds 220,000 Letter B
PROBLEM 20-15
Effective Interest Method
Acquisition Cost- Jan. 1 ,2020 3,767,000

Discount amortization for 2020:
Interest Income(14% x 3,767,000) 527,380
Interest received (12% x 4,000,000) 480,000 47,380
Carrying Amount of the bond investment- Dec.31,2020 3,814,380 A.
Problem 20-16 (AICPA Adapted) - Paradox Company
Acquisition cost 3,756,000

Multiplied by: Effective rate 10%
Interest Income - 2020 375,600 D.
Problem 20-17
Face Amount 5,000,000

Multiplied by rate 8%
Interest receiveable 400,000
Multiplied by : ( July- Dec.)
Interest receiveable 200,000 D.
PROBLEM 20-18 (CONAIR COMPANY)
Interest received 50,000 (1,000,000 x10% x6/12)

Interest income 47,920 (1,198,000 x8% x6/12)
Acquisition cost- July 1,2020 1,198,000

Carrying amount of bond investment- Dec.31,2020 1,195,920 C.
0 x10% x6/12)
0 x8% x6/12)
PROBLEM 20- 19
Accrued Interest 40,000

( 1,000,000 x 8% x 6/12)
( 906,000 x 10% x 6/12)
Discount Amortization 5,300
Acquisition Cost - July 1, 2020 906,000

( 946,000 - 40,000)
Discount Amortization 5,300
Carrying amount - December 31,2020 911,300
PROBLEM 20-20 (AICPA Adapted)
Pearl Company
What is the carrying amount of the bond investment on December 31, 2021?
Carrying amount, January 1, 2020 4,562,000

Amortization of discount for 2020:
Interest income (4,562,000 x 10%) 456,200
Interest received (5,000,000 x 8%) 400,000 56,200
Carrying amount, December 31, 2020 4,618,200
Amortization of discount for 2021:

Interest income (4,618,200 x 10%) 461,820
Interest received (5,000,000 x 8%) 400,000 61,820
Carrying amount, December 31, 2021 4,680,020 (a)
Date Interest received Interest income Discount Amortization
1-Jan-20
31-Dec-20 400,000 456,200 56,200
31-Dec-21 400,000 461,820 61,820
Carrying amount
4,562,000
4,618,200
4,680,020
PROBLEM 20-21 SCHEME COMPANY
Interest Received from July to Dec 2020 200,000 (5,000,000 x 8% x 6/12) Face value x nominal rate x con
Discount amortization for 6mnths end dec 2020 18,000 (given na sa 2nd paragraph) discount is a gain so add
Interest Income for 2020 218,000 D final answer
alue x nominal rate x consumed months
count is a gain so add
PROBLEM 20-22: DUMAGUETE COMPANY
DATE INTEREST RECEIVED INTEREST INCOME

1/1/2020
12/31/2020 400,000 336,480
12/31/2021 400,000 331,398
12/31/2022 400,000 326,122
1. What amount of unrealized loss should be reported as component of other comprehensive income in 2020?
A. 342,480
Market Value - 12/31/20 (4,000,000 * 95%)

Carrying Amount - 12/31/20
Unrealized Loss - 2020
2. What amount of unrealized loss should be reported as component of other comprehensive income in 2021?
B. 131,398
3. What amount of cumulative unrealized loss should be reported in the statement of changes in equity on December
C. 473,878
4. What is the carrying amount of the bond investment to be reorted on December 31,2021?
B. 3,600,000
Market Value - 12/31/21 (4,000,000 * 90%)

Carrying Amount per Table - 12/31/21
Cumulative Unrealized Loss - 2021
Less: Unrealized Loss - 2020
Increase in Unrealized Loss - 2021
PREMIUM AMORTIZATION CARRYING AMOUNT
4,206,000
63,520 4,142,480
68,602 4,073,878
73,878 4,000,000
ent of other comprehensive income in 2020?
3,800,000
(4,142,480)
(342,480) A.
ent of other comprehensive income in 2021?
d in the statement of changes in equity on December 31, 2021?
ted on December 31,2021?
3,600,000 B.
(4,073,878)
(473,878) C.
(342,480)
(131,398) B.
Interest Received = 400,000
(4,000,000 * 10%)
Interest Income
(Carrying Amount * 8%)

Acquisition Cost 4,206,000
Premium 206,000
PROBLEM 20-23
GELYKA COMPANY
REQUIREMENTS:
1. What is the gain from change in fair value should be reported for 2020?
Purchase price 5,500,000

Less: Transaction cost -100,000
ADJUSTED COST 5,400,000
Market value 5,750,000 (5,000,000 x115)

Adjusted cost -5,400,000
GAIN FROM CHANGE IN FAIR VALUE 350,000 C
2. What amount of interest income should be reported for 2020?

Multiply: Stated rate 12%
INTEREST INCOME 600,000 A
3. What is the carrying amount of the bond investment on decmeber 31, 2020?
Market value 5,000,000

Multiply: quoted price 115
CARRYING AMOUNT 5,750,000 A
4. What total amount of income from the investment should be reported in the income statement for 2020?
Gain from change in fair value 350,000

INCOME FROM INVESTMENT 950,000 B
(5,000,000 x115)
tement for 2020?

Chapter 20 Compilation

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PROBLEM 20-1

DATE INTEREST RECEIVED INTEREST INCOME

Dec-31 Cash 160,000

31 Investment in bonds 30,050

31 Investment in bonds 33,055

31 Investment in bonds 36,395

2. Prepare journal entries for 2020 & 2021

Investment In Bonds 79,360

Investment In Bonds 85,709

Dec. 31 : Cash 5,500,000

Dec-31 Accrued interest receivable 660,000.00

Dec-31 Investment in bonds 94,325.00

May-01 Cash 6,480,000.00

Carrying amount Feb. 1, 2021 5,588,900.00

Selling price (6,000,000 x 105%) 6,300,000.00

Required: Journal Entry

Dec-31 Cash 960,000 Interest Received/Income

Dec-31 Interest Income 100,160 Premium Amortization

Interest Received/Income Interest Income

Dec.31 Cash (5,000,000 x 12 600,000

Dec.31 Interest Income 75,850 Interest Received 600,000

Dec.31 Interest Income 63,435 Interest Received 480,000

B Cash (8,000,000 x 10%) 800,000

C Investment in bonds 121,480

Interest expense (7,679,000 x 12%) 921,480

DATE INTEREST RECEIVED INTEREST INCOME DISCOUNT AMORTIZATION

2. Prepare journal entries for 2020, 2021, and 2022.

December 31 Cash 300,000

Financial Asset @FVOCI 79,360

Financial Asset @FVOCI 428,640

Financial Asset @FVOCI 85,709

Financial Asset @FVOCI 164,291

Financial Asset @FVOCI 92,931

Fair Value 5,250,000

Fair Value 5,500,000

Carrying amount 5,000,000

31-Dec Cash ( 12% * 5,000,000) 600,000

31-Dec Financial Asset - FVPL 620,000

(5,000,000 x 1.2) 6,000,000

31-Dec Loss from change in fair value 250,000

( 5,000,000 x 1.15) (5,750,000)

A. Compute the market price of the bonds.

PV of principal (5,000,000 x 0.377) 1,885,000

Semiannual nominal interest payment ( 5,000,000 x 4 200,000

B. Prepare journal entries for the current year.

Jan 1 Investment in bonds 4,377,400

June 30 Cash 200,000

Investment in bonds 18,870

Dec 31 Cash 200,000

Investment in bonds 19,814

=(4000000*. 567) 2268000

present value of an annuity of 1 for 10 periods at 5%

present value of principal (8,000,000 x 0.6756)

1-Jan investment in bonds 8,648,800

1-Jul cash 400,000

1-Jul interest income 54,048

31-Dec accrued interest receivable 400,000

31-Dec interest income 56,210

date interest received interest income

premium amortization carrying amount

Principal Payment 1,000,000

Principal Payment 1,000,000

December 31, 2020 payment (1,360,000 x .91) 1,237,000