ACTIVITY NO.

12 – FINANCIAL ASSET AT AMORTIZED COST

ACC126

1) On January 1, 2021, Purl Company purchased as a long-term investment, P5,000,000 face

amount of Shaw Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10%
interest.

The bonds mature on January 1, 2026, and pay interest annually on December 31. The interest method
of amortization is used.

a) What amount should be reported as interest income for 2022?

b) What is the carrying amount of the bond investment on December 31, 2022?

2) On January 1, 2021, Russia Company purchased 5-year bonds with face amount of P8,000,000
and stated interest of 10% per year payable semiannually on June 30 and December 31. The
bonds were acquired to yield 8%.

Present value of an ordinary annuity of 1 for 10 periods at 5% 7.72

Present value of an ordinary annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.68
a) What is the market price of the bonds?

b) What amount should be reported as interest income for 2021?

3) On July 1, 2021, East Company purchased as a long-term investment P5,000,000 face amount,
8% bonds of Rand Company for P4,615,000 to yield 10% per year. The bonds pay interest
semiannually on January 1 and July 1.

On December 31. 2021, what amount should be reported as interest receivable?

4) Jent Company purchased bonds at a discount of P100,000. Subsequently, Jent sold these bonds
at a premium of P140,000. During the period that Jent held this long-term investment,
amortization of the discount amounted to P20,000.

What amount should be reported as gain on the sale of bonds?

5) On January 1, 2021, Arabian Company purchased serial bonds with face amount of P3,000,000
and stated 12% interest payable annually every December 31.

The bonds are to be held as financial assets at amortized cost with a 10% effective yield.

The bonds mature at an annual installment of P1,000,000 every December 31. The present value
of 1 at 10% for:

One period 0.91

Two periods 0.83
Three periods 0.75

What is the present value of the serial bonds on January 1, 2021?