1. Apple Co.

purchased bonds at a discount on the open market as an investment and intends to hold
these bonds to maturity. Apple does not elect the fair value option for the bonds. Appl should account
for these bonds at
a. Cost. c. Fair value.
b. Amortized cost. d. Lower of cost or market.

2. On January 1, 2007, Amira Company purchased bonds with face value of P5,000,000. The company
paid P4,600,000 plus transaction costs of P142,000. The bonds mature on December 31, 2009 and pay
6% interest annually on December 31 of each year with 8% effective yield. The bonds were quoted at
105 on December 31, 2007. The bonds are sold at 110 on December 31, 2008. What amount of gain on
sale on these bonds should be reported in the 2008 income statement?
a. 500,000 c. 592,931
b. 250,000 d. 758,000

3. Milk Company acquired long-term 12% bonds, P2,000,000 face value for P2,192,000 including accrued
interest and brokerage of P92,000 on January 1, 2007. The bonds pay semiannual interest and mature
May 1, 2013. On December 31, 2007, Milk sold all bonds for P2,300,000 excluding accrued interest.
What is the gain on sale of bonds?
a. 172,000 c. 148,000
b. 108,000 d. 300,000

4. On July 1, 2007, Abanakakabasanapalaako Company purchased as a long-term investment P1,000,000

of Pasali Company's 8% bonds for P946,000, including accrued interest of P40,000. The bonds were
purchased to yield 10% interest, The bonds mature on January 1, 2013, and pay interest annually on
January 1. Ayos uses the effective interest method of amortization. In its December 31, 2007 balance
sheet, what amount should Abanakakabasanapalaako report as investment in bonds?
a. 911,300 c. 953,300
b. 916,600 d. 960,600

5. On January 1, 2007, Anghirapngaccounting Company purchased MasmahirapangOblicon Company 9%

bonds with a face amount of P4,000,000 for P3,756,000 to yield 10%. The bonds are dated January 1,
2007, mature on December 31, 2016, and pay interest annually on December 31. Madali uses the
interest method of amortizing bond discount. In its income statement of the year ended December 31,
2007, what total amount should Madali as interest revenue from the long-term bond investment?
a. 400,000 c. 360,000
b. 375,600 d. 344,400

6. On January 1, 2007, Hurinani Company purchased ten-year bonds with a face value of P1,000,000 and
a stated interest rate of 8% per year payable semiannually July 1 and January 1. The bonds were acquired
to yield 10%. Present value factors are as follows:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 20 periods at 5% .377
Present value of an annuity of 1 for 10 periods at 10% 6.145
Present value of an annuity of 1 for 20 periods at 5% 12.462
The purchase price of the bonds is
a. 1,124,620 c. 1,000,000
 b. 1,100,000 d. 875,480

7. Lapis Company purchased bonds at a discount of P100,000. Subsequently, Lapis sold these bonds at a
premium of P140,000. During the period that Lapis held this investment, amortization of the discount
amounted to P20,000. What amount should Lapis report as gain on sale of bonds?
a. 120,000
b. 220,000