Problem 1

On January 1, 2020, V Company purchased bonds with face value of 3,000,000 for 3,108,000 to yield 12%. The
bonds are due on December 31, 2024 and carry a 13% interest rate. Interest receivable annually on December
31. On June 30, 2021, ½ of the bonds were sold for 1,595,000 plus accrued interest. After the disposal, the
company changed its business model for managing its financial assets and is now actively trading its portfolio.
At December 31, 2021, the bonds were quoted at 101.
A. What is the gain on sale of the bond investment?
B. What is the carrying value of the remaining bond investment to be reported in the company’s statement
of financial position at December 31, 2021?
C. Prepare the journal entries for the year 2020 and 2021.

Problem 2

On June 1, 2021, S Company purchased debt investment at amortized cost 8,000 of 1,000 face value, 8% bonds
of P Company for 7,383,000. The bonds were purchased to yield 10% interest. Interest payable semi-annually
on December 1 and June 1. The bonds mature on June 1, 2026. S uses the effective interest method of
amortization. On June 1, 2022, S sold the bonds for 7,850,000. The amount includes the appropriate accrued
interest.
A. What is the gain or loss on the sale of the debt investment?
B. If S accounting year is the calendar year, how much is the interest income for the year ended December
31, 2021?
C. Prepare the journal entries for the year 2021 and 2022.

Problem 3

On December 31, 2020, S Company purchased debt investment at amortized cost 3,000,000 serial bonds with a
nominal rate of 10% effective rate at that time is 13%. Bonds with face value of 1,000,000 mature on December
31, 2021 and every December 31 thereafter.
a. What is the initial cost of the debt investment?
b. What is the carrying amount of the debt investment on December 31, 2021?
c. Prepare the journal entries for 2020 and 2021.

Problem 4

On January 1, 2020, B Company purchased as debt investment at amortized cost 1,000,000 face value of B
Inc.’s 8% bonds for 912,400. The bonds were purchased to yield 10%. The bonds mature on January 1, 2026
and pay interest annually on January 1. B uses the effective interest method of amortization.
a. What amount should B report as debt investment at amortized cost on December 31, 2021 statement of
financial position?
b. What is the interest revenue reported by B from this investment for the year ended December 31, 2021?
c. Prepare the journal entries for the year 2020 and 2021.

Problem 5

On January 1, 2020, S Company purchased B Company, 9% bonds with face value of 4,000,000 for 3,756,000.
The debt investment are carried at amortized cost. The effective interest rate at that time is 10%. The bonds are
dated January 1, 2020 and mature on December 31, 2029. The bonds pays annually on December 31. Market
quotation for the debt securities at December 31, 2019 is 99.
a. What is the interest revenue for the year 2020?
b. What is the carrying amount of debt investment at amortized cost at December 31, 2020?
c. Assuming that the debt investment is designed as at fair value through other comprehensive income.
How much is the unrealized gain or loss reported in the other comprehensive income for the year 2020?

Problem 6

On October 1, 2021, G Company purchased as debt investments at fair value through profit or loss, 100,000,
14% bonds of H Company for 99 plus accrued interest and broker’s fees. Interest paid semi-annually on
February 1 and August 1. Broker’s fees incident to this purchase amounted to 500.
A. How much is the total cash payment in the acquisition of the debt investment on October 1, 2021?
B. What is the amount of interest revenue reported by G on this bond investment in the 2021 statement of
comprehensive income?
C. Prepare the journal entries for the year 2021.