PROBLEMS RELATED TO Noel A.

Bergonia, CPA, MBA

DEBT INVESTMENTS
PROBLEM 7 Date Nominal (10%) Effective (12%) Discount Amort. Amortized Cost
On January 1, 2020, Euphoria Corporation purchased 3 Jan. 1, 2020 4,760,000
– year, 10%, 5,000 of P1,000 face value bonds for Dec. 31, 2020 500,000 571,200 71,200 4,831,200
Dec. 31, 2021 500,000 579,744 79,744 4,910,944
P4,600,000. In relation to this acquisition, Euphoria Dec. 31, 2022 500,000 589,056 89,056 5,000,000
incurred P160,000 broker’s commission. Euphoria
intended to collect contractual cash flows and to sell the FV 12/31/2021 (5,000,000 x 105%) 5,250,000
financial asset. Amortized cost, 12/31/2021 4,910,944
Cumulative Unrealized Gain 339,056
On June 30, 2022, Euphoria sold the bonds at 110 plus Balance before adjustments
interest. Meanwhile, Euphoria determined the following (5,100,000 - 4,831,200) 268,800
fair values at each year-end:
Unrealized gain, 2021 adjustments 70,256
December 31, 2020 102
December 31, 2021 105
December 31, 2022 104 Selling price (5,000,000 x 110%) 5,500,000
Amortized cost at June 30, 2022
CV, 12/32/2021 4,910,944
Using a 12% effective interest rate, determine the Discount amort. Until June 30, 2022
following: (89,056 x 6/12) 44,528 4,955,472
▪Amount of unrealized gain to be reported as part as Gain on sale 544,528
component of other comprehensive income in the 2021
statement of comprehensive income
▪Gain on sale of the bond on June 30, 2022. NOEL A. BERGONIA, CPA, MBA
PROBLEM 8 CV, 12/31/2020 = P537,500
On December 31, 2018, Life Goes On Company purchased 5 –
Date Nominal (7%) Effective (5%) Premium Amort. Amortized Cost
year, P500,000 face value bonds at a premium of P43,300
Dec. 31, 2018 543,300
and classified the same as investment at fair value through Dec. 31, 2019 35,000 27,165 7,835 535,465
other comprehensive income. The bond indenture stated that Life Dec. 31, 2020 35,000 26,773 8,227 527,238
Goes On will receive interest of P35,000 annually. Dec. 31, 2021 35,000 26,362 8,638 518,600

FV 12/31/2020 537,500
In 2020, Life Goes On’s accountant recorded premium Amortized cost, 12/31/2020 527,238
amortization of the bond in the amount of P8,227. On Cumulative Unrealized Gain 10,262
December 31, 2021, Life Goes On sold 60% of the bonds for Balance before adjustments- gain
P300,450. Following are the fair values of the bonds at each (535,500 - 535,465) (35)
year-end:
Unrealized gain, 2021 adjustments 10,227
12/31/19- P 535,500 12/31/22- P 210,060
12/31/20- P 537,500 12/31/23- P 250,130
12/31/21- P 500,750 Interest income, 12/31/2021 = P26,362

Determine the following: Selling price 300,450

1. Carrying the value of the bond on December 31, 2020. Amortized cost of sold bonds, 12/31/2021
2. Amount of unrealized gain or loss to be presented in the (518,600 x 60%) 311,160
December 31, 2020 statement of comprehensive income. Loss on sale 10,710
(identify whether gain or loss)
3. Interest income in 2021.
4. Gain or loss on sale NOEL A. BERGONIA, CPA, MBA
NOEL A. BERGONIA, CPA, MBA