QUIZ #5 - 2 Problems (VARGAS)

Problem 1 - Investment in Debt

(1) Classified as at Amortized Cost

Grow Company
Amortization Table
Date Nominal Interest Effective Interest Prem. Amortization Amortized Cost, end.
1/1/Year1 1,063,394
12/31/Year 1 120,000 106,339 13,661 1,049,733
12/31/Year 2 120,000 104,973 15,027 1,034,706
12/31/Year 3 120,000 103,471 16,529 1,018,177

(a) Carrying Value, 12/31/Year 2 1,034,706

(b) Sales Price 606,000

Carrying Value, 1/1/Year 3
(1,034,706 x 600,000 x 1,000,000) 620,824
Amortization 1/1/Year 3 - 4/1/Year 3
(16,529 x 3/12 x 600/1000) -2,479 618,345
Loss on Sale -12,345

(c) Interest Income for Year 3

Jan 1 to Mar 31 (103,471 x 3/12) 25,868
Apr 1 to Dec 31 (103,471 x 400/1000 x 9/12) 31,041
Total Interest Income for Year 3 56,909

(d) Carrying Value, 12/31/Year 3 407,271

(1,018,177 x 400/1000)

(2) Classified as Debt Investments at FV throught Profit or Loss

(a) Interest Income (1,000,000 x 12%) 120,000

(b) Sales Price 606,000

Carrying Value, 12/31/Year 2 (600,000 x 1.06) 636,000
Loss on Sale 30,000

(c) Carrying Value - Year 2

12/31/Year 2 (FV) (1,000,000 x 1.06) 1,060,000
Carrying Value - Year 3
12/31/Year 3 (400,000 x 1.04) 416,000
 (3) Classified as at Fair Value Through Other Comprehensive Income

(a) Carrying Value, 12/31/Year 2 (1,000,000 x 1.06) 1,060,000

(b) Sales Price (600,000 x 1.01) 606,000

Amortized Cost 618,345
Loss on Sale -12,345

(c) Interest Income for Year 3

Jan 1 to Marc 31 (103,471 x 3/12) 25,868
Apr 1 to Dec 31 (103,471 x 400/1000 x 9 /12) 31,041
Total Interest Income for Year 3 56,909

(d) Fair Value, Dec. 31, Year 3 (400,000 x 1.04) 416,000

Amortized Cost, Dec. 31, Year 3 (1,018,177 x 4/10) 407,270.80
Cumulative Amount of Unrealized Gains/Loss 8,729.2

Problem 2 - Investment in Equity

Year 2
Apr-01 Cash (5,000 x 25) 125,000
Loss on Sale of Equity Investments 14,000
Equity Investments at FVPL - Avi Ordinary

May-15 Equity Investments at FV through OCI - Ghio

Preference 30,550
Cash (600 x 50) + 550

Jul-10 Memorandum Entry

Received 4,000 additional shares of Darrel ordinary representing
a 20% bonus issue. Shares now held are 24,000

Nov-30 Cash (1 x 24,000) 24,000

Dividend Revenue

Dec-31 Unrealized Loss on Equity Investments - Profit or Loss

Equity Investments at FVPL - Avi Ordinary 9,000
(5,000 x 26 = 130,000 ; 130,000 - 139,000)

Dec-31 Equity Investments at FV through OCI - Darrel 110,000

Equity Investments at FV through OCI - Ghio 650
Unrealized Gains and Losses on Equity Investments - OCI
 Fair Value Carrying Value Change in FV
Darrel 480,000 370,000 110,000
Ghio 31,200 30,550 650
Total 511,200 400,550 110,650
Amortized Cost, end.
1,063,394
1,049,733
1,034,706
1,018,177

1,034,706

606,000

618,345
-12,345

25,868
31,041
56,909

407,271

120,000

606,000
636,000
30,000

1,060,000

416,000
1,060,000

606,000
618,345
-12,345

25,868
31,041
56,909

416,000
407,270.80
8,729.2

139,000

30,550

24,000

9,000

110,650